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FINC20023 International Financial Management

tag 0 Download 8 Pages / 1,957 Words tag 11-11-2020


Question 1:
What is the theory of comparative advantage? Is the theory applicable in the current contexts? Why or why not?
Question 2:
Discuss and compare the different corporate governance regimes. Why should MNEs be concerned with such differences?
Question 3:
Classify the following as a transaction reported in a sub-component of the current account, or the capital and financial accounts of the countries involved:
An Australian firm purchases a web hosting service from a US firm.
Singaporean parents pay for their son’s study at an Australian university.
A German company buys an insurance policy from a US insurer.
An Indian firm pays the salary of its executive working for a subsidiary in Australia.
An Australian firm buys 100% shares of a Malaysian company.
Question 4:
Discuss what you understand by the term ‘impossible trinity’.
Question 5:
An Australian company is planning to import a new machine and is making a choice between two international suppliers. A supplier in Japan has quoted ¥2,500,000 as the price of the machine and ¥100,000 as the shipment cost. A supplier in Germany has quoted €20,000 as the price of a similar machine and €350 as the shipment cost. The following exchange rate information are available:
Exchange Rate between Australian Dollar and US Dollar: $0.77/A$
Exchange Rate between US Dollar and Japanese Yen: ¥107/$
Exchange Rate between Euro and US Dollar: $1.22/€
Which of these suppliers should the company choose? Assume that the choice is solely based on total Australian Dollar cash outlay required to cover the price of the machine and the shipping cost.

Question 6:
A German car now costs €50,000. The spot exchange rate is €0.67/A$. If the expected inflation rates in Australia and Germany are respectively 2.50% and 0%, what will be the Australian Dollar price of that car 1 year from now:
i.If there is 100% exchange rate pass through?
ii.If there is 65% exchange rate pass through?

[[Please note a very similar solution indicated in week 3/4 resources- please particularly note my comments with respect to that solution; for 65% pass through determination, assume A$ as the home currency during the percentage change of exchange rate calculation]]

Question 7:
John is a Forex trader. He focuses principally on the US Dollar/Singapore Dollar ($/S$) cross-rate. The current spot rate is $0.76/S$ After considerable study, he concludes that the exchange rate, in the coming 180 days, will probably be about $0.95/S$. He has the following options on the Singapore Dollar to choose from:
Option Strike Price Premium
PUT on S$ $0.86/S$ $0.00014/S$
CALL on S$ $0.86/S$ $0.00017/S$
Discuss whether he should buy a PUT on S$ or CALL on S$, and what would be his net profit (in $) if the spot rate at the end of the 180 days is $0.92/S$.

Question 8:
Is purchasing power parity an accurate estimator of future exchange rates? Why or why not? Please explain.

Question 9:
On a particular date, the exchange rate between the Great Britain Pound (GBP) and the Australian Dollar and the exchange rate between the Australian Dollar and Euro were respectively £0.5221/A$ and A$1.60/€. On a later date, the exchange rates were respectively £0.5507/A$ and A$1.64/€. What were the percentage change in the values of the GBP and Euro against the Australian Dollar between these two dates? Were the changes devaluation or revaluation or appreciation or depreciation of these currencies? Assume that Australian Dollar is the home currency.

Question 10:
An Australian organization has a ¥40,000,000 account receivable from a Japanese customer in 3 months. The current Japanese yen (¥)/Australian Dollar (A$) spot exchange rate is ¥88.35/A$. The Australian organization expects that the spot rate in 3 months will be ¥95.45/A$. The 3-month forward exchange rate is ¥92.50/A$. The Australian Dollar (A$) 3-month borrowing rate is 8.00% per annum and the Australian Dollar (A$) 3-month investment rate is 5.00% per annum. The Japanese yen (¥) 3-month borrowing rate is 4.00% per annum and the Japanese yen (¥) 3-month investment rate is 2.00% per annum. The organization’s weighted average cost of capital is 10% per annum. The organization is considering three hedge positions: remaining unhedged, forward market hedge and money market hedge. Which of these hedge positions should the organization adopt?
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