Reference no: EM131749019

Assessment - Financing and Exchange Rates

Complete a series of four problems in which you calculate financing and exchange rates.

Note: The assessments in this course build upon each other, so you are strongly encouraged to complete them in sequence.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment objectives:

Competency 1: Apply the theories, models, and practices of finance to the financial management of the firm.

• Calculate accurately the value of a foreign currency using the spot exchange rate and forward rate.
• Calculate accurately the cross-rate of a foreign currency.

Competency 3: Evaluate alternative methods of financing a firm in diverse economic environments.

• Calculate accurately the net working capital and current assets of an organization.
• Calculate accurately the value of an organization after a rights offering and the value of a right.

Questions to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• What are some political and currency risks for a country other than the United States or Canada? Why might a U.S. organization invest-for example, build a factory-in that country?
• Why is it important for leaders of international organizations to understand international finance topics (such as the foreign exchange market, purchasing power parity, interest rate parity, and cross-rates)?

Assessment Instructions

Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work on the problems.

Problem 1. Cash equation: Bettendorf Corporation has a book net worth of $17,800. The company's long-term debt is $6,900. Its net working capital, excluding cash, is $1,600. Its fixed assets are $21,300. How much cash does the company have? If the current liabilities are $2,575, what are the current assets?

Problem 2. Rights offerings: Borkin Incorporated is proposing a rights offering. Currently, there are 560,000 shares outstanding at $85 each. There will be 65,000 new shares offered at $78 each. Calculate each of the following:

1. The new market value of the company.

2. The number of rights that are associated with one of the new shares.

3. The ex-rights price.

4. The value of a right.

Problem 3. Using spot and forward exchange rates: The spot exchange rate for the Canadian dollar (CAD) is 1.14 CAD and the six-month forward rate is 1.17 CAD. Calculate whether a U.S. dollar (USD) or a Canadian dollar is worth more.

Problem 4. Cross-rates and arbitrage: The Japanese yen (JPY) exchange rate is 96 JPY = 1 USD, and the British pound (GBP) exchange rate is 1 GBP = 1.72 USD. Calculate the cross-rate in terms of yen per pound.

Attachment:- Assignment File.rar