Ask Basic Finance Expert

1. Frizzell Corporation has 1,000,000 euros as receivables due in thirty days, and is certain that the euro will depreciate substantially over time. Suppose that the firm is correct, the ideal strategy is to:
A) sell euros forward.
B) purchase euro currency put options.
C) purchase euro currency call options.
D) purchase euros forward.
E) remain unhedged.

2. Assume that Hoseman Co. will need to purchase 100,000 Singapore dollars (S$) in 180 days. Todayâ??s spot rate of the S$ is $.50, and the 180 day forward rate is $.53. A call option on S$ exists, with an exercise price of $.52, a premium of $.02, and a 180 day expiration date. A put option on S$ exists, with an exercise price of $.51, a premium of $.02, and a 180 day expiration date. Hoseman has developed the following probability distribution for the spot rate in 180 days:

Possible Spot Rate
in 90 Days Probability
$.48 10%
$.53 60%
$.55 30%

The probability that the forward hedge will result in a higher payment than the options hedge is _______ (include the amount paid for the premium when estimating the U.S. dollars required for the options hedge).
A) 0% B) 10% C) 30% D) 40% E) 70%

3. A foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be higher if the foreign currency _______ in year 1 and _______ in years 2 though 5.

A) depreciates; depreciates
B) appreciates; appreciates
C) depreciates; appreciates
D) appreciates; depreciates

4.Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
A)the Chinese yuan would depreciate in the future.
B)the Chinese yuan would appreciate in the future.
C)the Chinese yuan would remain somewhat stable in the future.
D)none of these; the value of the Chinese yuan has no impact on the feasibility of a divestiture.

5. The term â??local target capital structureâ? is used in the text to represent the:
A) average capital structure of local firms where the MNCâ??s subsidiary is based.
B) average capital structure of local firms where the MNCâ??s parent is based.
C) desired capital structure of a subsidiary of a particular MNC.
D) desired capital structure of a particular MNC overall (including all subsidiaries).

6. A firm forecasts the euroâ??s value as follows for the next year:
Possible Percentage Change Probability
â?"2% 10%
3% 50%
6% 40%

The annual interest rate on euro is 7%. The expected value of the effective financing rate from a U.S. firms perspective is about:

A) 8.436%.
B) 10.959%.
C) 11.112%.
D) 11.541%.

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9307194

Have any Question?


Related Questions in Basic Finance

Question utilizing the concepts learned throughout the

Question: Utilizing the concepts learned throughout the course, write a Final Paper on one of the following scenarios: • Option One: You are a consultant with 10 years experience in the health care insurance industry. A ...

Discussion your initial discussion thread is due on day 3

Discussion: Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your r ...

Question financial ratios analysis and comparison

Question: Financial Ratios Analysis and Comparison Paper Prior to completing this assignment, review Chapter 10 and 12 in your course text. You are a mid-level manager in a health care organization and you have been aske ...

Grant technologies needs 300000 to pay its supplier grants

Grant Technologies needs $300,000 to pay its supplier. Grant's bank is offering a 210-day simple interest loan with a quoted interest rate of 11 percent and a 20 percent compensating balance requirement. Assuming there a ...

Franks is looking at a new sausage system with an installed

Franks is looking at a new sausage system with an installed cost of $375,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped ...

Market-value ratios garret industries has a priceearnings

(?Market-value ratios?) Garret Industries has a? price/earnings ratio of 19.46X a. If? Garret's earnings per share is ?$1.65?, what is the price per share of? Garret's stock? b. Using the price per share you found in par ...

You are planning to make annual deposits of 4440 into a

You are planning to make annual deposits of $4,440 into a retirement account that pays 9 percent interest compounded monthly. How large will your account balance be in 32 years?  (Do not round intermediate calculations a ...

One year ago you bought a put option on 125000 euros with

One year ago, you bought a put option on 125,000 euros with an expiration date of one year. You paid a premium on the put option of $.05 per unit. The exercise price was $1.36. Assume that one year ago, the spot rate of ...

Common stock versus warrant investment tom baldwin can

Common stock versus warrant investment Tom Baldwin can invest $6,300 in the common stock or the warrants of Lexington Life Insurance. The common stock is currently selling for $30 per share. Its warrants, which provide f ...

Call optionnbspcarol krebs is considering buying 100 shares

Call option  Carol Krebs is considering buying 100 shares of Sooner Products, Inc., at $62 per share. Because she has read that the firm will probably soon receive certain large orders from abroad, she expects the price ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As