User Account

All Pages

Determine the dollar cash flows to be received

Assignment Help Financial Management
Reference no: EM132339602

International Finance, Investment and Capital Flow Assignment -

This Individual Assignment. Read the requirements for each question and plan your responses carefully. Answer all five questions. Although your responses should be concise, ensure that you answer all portions of each question completely. The objective of this assignment is for you to synthesize the material presented in the course, and to consider each question rationally and logically.

Q1. Suppose that Bell Aliant (a Canadian firm) expects to receive 1 million euros in one year. The existing spot rate of the euro is CAD 1.50. The one-year forward rate of the euro is CAD1.52. Bell Aliant expects the spot rate of the euro to be CAD 1.51 in one year.

Assume that one-year put options on euros are available, with a strike price of CAD1.53 and a premium of CAD 0.06 per unit. Assume the following money market rates:

Canada

Eurozone

Deposit rate

2%

0.25%

Borrowing rate

3.25%

0.50%

a. Determine the dollar cash flows to be received if Bell Aliant uses a money market hedge (i.e. foreign exchange swap). (Assume the firm does not have any cash on hand.)

b. Determine the dollar cash flows to be received if Bell Aliant uses a put option hedge. What conclusion would you draw between the money market hedge and the put option hedge in the case of Bell Aliant?

Q2. Suppose that the USD - CAD spot exchange rate is USD = CAD 1.34 and the 180-day forward rate is USD = CAD 1.30. Suppose the 180-day U.S. interest rate is 2.15% and Canada's 180-day interest rate is 2.75%. Based on this information:

a. Is covered interest parity arbitrage by Canadian investors feasible (assuming that the investment is CAD 1 million and that Canadian investors use their own funds? Explain.

b. Does interest parity exist? Explain.

c. Explain in general terms how various forms of arbitrage can remove any discrepancies in the pricing of currencies.

Q3. Use the purchasing power parity (PPP) theory to answer the following.

a. A Canadian importer of American car parts pays for the components in USD. The importer is not concerned about a possible increase in U.S. prices (charged in USD) because of the likely offsetting effect caused by PPP. Explain what this means.

b. In (a), from what you have learned about the tests of PPP, explain why the Canadian importer of American car components should be concerned about its future payments.

c. (i) Explain how the USD to CAD exchange rate might change if Canada experiences high inflation, while the U.S. experiences low inflation.

(ii) Assume that the spot rate is CAD = USD 0.75 and Canadian and U.S. inflation rates are similar. Suppose that Canada experiences 3% inflation, while the U.S. experiences 2% inflation. What will be the new value of the CAD after it adjusts to the inflationary changes? (You may use the approximate formula to answer this question.)

Q4. One Canadian executive commented that the United Sates was not considered as a location for foreign direct investment (FDI) because the US dollar value was too strong. Interpret this statement.

Explain any two reasons why Canadian firms might prefer to engage in FDI in Mexico rather than in the U.S.

Q5. Explain how the declining international reserves could be a prelude to a financial crisis.

How did high levels of leverage in financial institutions contribute to the Great Recession of 2007-2009? What other factor or factors could have also contributed to the Great Recession and how?

Verified Expert

The money market hedge involves the borrowing and lending activities and these activities enables a company to create a homemade forward contract and the put option is a type of option which gives the buyer a right not the obligation to sell the specified securities or a foreign currency to the seller of the option at a fixed price or at specified time.

Reference no: EM132339602

Questions Cloud

Describe the different transistor configurations : ELECTRONIC CIRCUITS-Year 2 Semester I-Describe the different transistor configurations and applications such as switching circuits and amplifiers.
Academically reviewed articles on production cost : Find at least 4 academically reviewed articles on production cost. Write an annotated bibliography on the 4 articles.
How does ripley alter or complicate schmid argument : Schmid argues that often the murderers portray a fear or hatred of women as motive for their killing. How does Ripley alter or complicate Schmid's argument?
What information did you learn from your scholarly sources : What information did you learn from your scholarly sources? What do experts teach us? Please add your information, references, and in text citations in APA.
Determine the dollar cash flows to be received : EFIC 698 International Finance, Investment and Capital Flow Assignment, Athabasca University, Canada. Determine the dollar cash flows to be received
Demonstrate skills in computer hardware and troubleshooting : WORKSHOP PRACTICE / GROUP PROJECT-Year 1 Recess Term-NATIONAL COUNCIL FOR HIGHER EDUCATION- Introduce the student to proper handling of tools and safety.
The VRIO framework to construct the cash-flow analysis : Explain how you would use the VRIO framework to construct the cash-flow analysis that is a part of any present-value calculation.
Compare tests according to the code first four elements : In Unit 1, you read "The Concerns of the Profession" on pages 66-68 of your Psychological Testing and Assessment text as well as the Code. While the Code.
Write an annotated bibliography : Find at least 4 academically reviewed articles on production cost. Write an annotated bibliography on the 4 articles.

Reviews

len2339602

7/15/2019 9:50:54 PM

This Individual Assignment is worth 20% of your final grade and should be done after you have completed all the eight lessons of the course. Read the requirements for each question and plan your responses carefully. Answer all five questions. Each Question is 20 marks. Although your responses should be concise, ensure that you answer all portions of each question completely. The objective of this assignment is for you to synthesize the material presented in the course, and to consider each question rationally and logically.

len2339602

7/15/2019 9:50:48 PM

This individual assignment, worth 20% of your final grade (and marked out of 100), is based on the topics covered in the course. The questions you are to answer will be posted in Coaches’ Corner. Please be sure to review and follow the full “Individual Assignment” section in the course Study Guide. Marks for your responses will be based on the following criteria. If your response: Addresses the questions, applies economic concepts (when possible) to analyze scenarios and draw conclusions, and shows strong synthesis of theory or evidence. From the rubric, it is clear that there are three main criteria for your answers: (i) you must answer the question posed in the assignment clearly and concisely, (ii) you should draw upon economic theory whenever possible and use the terms and concepts you have learned, and (iii) you must apply the theory or evidence in your synthesis.

Write a Review

Financial Management Questions & Answers

  Outperform small-stock indexes-most other small cap funds

DFA's small-stock funds managed to outperform small-stock indexes and most other small cap funds.

  Money into the retirement plan of the new employer

You have $83,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer.

  How would you interpret the beta value

How would you interpret this beta value? How would you evaluate the firm's systematic risk? 11. How is a security's beta value computed?

  What is the net present value of this project

ABC Company in considering a loss control investment. what is the net present value (NPV) of this project?

  What would you be willing to pay for the stock today

If you expect to receive a return of 16.00% on your investment, what would you be willing to pay for the stock today?

  What is the bond capital gain or loss yield in first year

What is the bond’s yields to maturity? What is the bond’s capital gain or loss yield in the first year in percent?

  Construct equity account for guaraldi at end of first year

Construct the equity account for Guaraldi at the end of its first year in business and calculate the firm's market capitalization.

  Tax considerations and will generate cash flows

An investment costs $5,000 after tax considerations and will generate cash flows of $1,000 a year over its life. The capital investment will last for 8, 9, or 10 years, with probabilities of 0.4, 0.4, and 0.2 respectively. At a 11% required return, c..

  The risk of individual stock is measured

The risk of an individual stock is measured by:

  Share in commissions for each transaction

You paid 50 cents per share in commissions for each transaction. What is the balance of your account? Annual interest rate is 10%.

  What is the dollar amount of the annual deposit

What is the dollar amount of the annual deposit that, at the end of year 14, achieves your goal (assume constant end of year deposits)?

  What is the smallest expected gain

A stock has an annual return of 13 percent and a standard deviation of 60 percent. What is the smallest expected gain over the next year with a probability of 1 percent?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd