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a) While market-based hedging instruments can be used to offset or counter uncertainties in interest rates and exchange rates as they impact the income statement, balance sheet hedges require a different approach. Assume you are the CFO of Toyota trying to offset the balance sheet risks associated with Toyota's $4.5 billion investment in Georgetown Kentucky. Please explain how this risk would be offset by a combination of a 15-year Euro Dollar Bond with equal repayments in the last five years and a floating rate 10 year syndicated Euro-Dollar bank loan combined with an interest rate swap. Assume a fifteen-year straight-line amortization of the new Georgetown facility.
b) Look at the JAL FX loss scenario in the Additional Text Readings where JAL lost as much or more in FX than the $800 million value of the planes it was purchasing. Then calculate JAL's cost if it had used a different type of hedge, borrowing US $ to buy US government bonds that it then cashed as each plane was purchased. Generally one can borrow up to 95% of the value of US government bonds with the borrowing cost normally about .25% or 25 basis points above the yield on the bonds. Assume that the yield on the bonds is 8% and that they borrow for the full 10 years noted in the case.
Hillary can invest her family savings in two assets: riskless treasury bills or a risky vacation home real estate project on an Arkansas river. The expected return on treasury bills is 4 percent with a standard deviation of zero.
Suppose that the two firms compete in output and set their output levels simultaneously. Given that firm 1's reaction curve is Q1 = 150 - 2Q2 and firm 2's reaction curve is Q2 = 150 - 2Q1, what are the two firms' output levels in equilibrium.
The Charm City Cereal Company makes a cereal from several ingredients. Two of the ingredients, oats and rice, provide vitamins A and B. The company wants to know how many ounces of oats and rice it should include in each box of cereal to meet.
Briefly discuss the difference between mechanism of an oral or English auction and a Vickrey or second price auction.
Derive the law of motion of capital per worker and draw the graph of the law of motion of capital per worker, and indicate the steady state.
Bounds Inc. has determined through regression analysis that its sales (S) are a function of the amount ofadvertising in two different media.This is given by the following relationship (X=newspapers,Y=magazines): S(X,Y) = 200X + 100Y - 10X2 - 20Y2 ..
At present, Zales has 100 rubies, 120 sapphires, and 70 hours of jeweler's labor. Extra rubies can be purchased at a cost of $100 per ruby. Market demand requires that the company produce at least 20 type 1 rings and at least 25 type 2.
Suppose that you are hired as consultant to a firm producing a therapeutic drug protected by a patent that gives a firm a monopoly in two markets. The drug can be transported between the two markets at no cost. The demand schedule in the first mar..
As a Plant Manager your plant team informs you that they have found a way to increase the size of the manufacturing run from 10,000 to 18,000 units in increments of 2000 units. The set up cost is 150,000 and defects cost $120 for removal/repair.
During the current year, sales total $2,000,000, income is $84,700 per capita, advertising is $500,000, and competitor advertising is $300,000. Previous period levels were $77,000 (income), $400,000 (advertising), and $400,000 (competitor advertis..
calculate the exact elasticity of demand in the following examples: Then tell if, in each case, demand is elastic, inelastic, or unitary elastic. (a) When the price of a deluxe car wash rises from $10.00 to $11.00, the number of daily customers fa..
if a consumer has indifference curves that are convex to the origin but have a kink in them (similar to the perfect complements example, except the angle at the kink is greater than 90 degrees) how can we determine the optimal bundle
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