Question: Chapter 19

4. Export-Import Bank

a. What is the role today of the Export-Import Bank of the United States?

b. Describe the Direct Loan Program administered by the Export-Import Bank.

8. Government Programs This chapter described many forms of government insurance and guarantee programs. What motivates a government to establish such programs?

Chapter 20

5. Short-Term Financing Analysis Assume that Davenport, Inc., needs $3 million for a 1-year period. Within 1 year, it will generate enough U.S. dollars to pay off the loan. It is considering three options:

(1) borrowing U.S. dollars at an interest rate of 6 percent,

(2) borrowing Japanese yen at an interest rate of 3 percent, or

(3) borrowing Canadian dollars at an interest rate of 4 percent.

Davenport expects that the Japanese yen will appreciate by 1 percent over the next year and that the Canadian dollar will appreciate by 3 percent. What is the expected "effective" financing rate for each of the three options? Which option appears to be most feasible? Why might Davenport, Inc., not necessarily choose the option reflecting the lowest effective financing rate?

12. Break-Even Financing Lakeland, Inc., is a U.S.-based MNC with a subsidiary in Mexico. Its Mexican subsidiary needs a 1-year loan of 10 million pesos for operating expenses. Since the Mexican interest rate is 70 percent, Lakeland is considering borrowing dollars, which it would convert to pesos to cover the operating expenses. By how much would the dollar have to appreciate against the peso to cause such a strategy to backfire? (The 1-year U.S. interest rate is 9 percent.)

Chapter 21

10. Effective Yield Repeat question 9, but this time assume that Rollins, Inc., expects the 180-day forward rate of the pound to substantially overestimate the spot rate to be realized in 180 days.

17. Impact of September 11 Palos Co. commonly invests some of its excess dollars in foreign government short-term securities in order to earn a higher short-term interest rate on its cash. Describe how the potential return and risk of this strategy may have changed after the September 11, 2001, terrorist attack on the United States.