Managerial Finance

P*t&, 11- I N7et DoCuroaNT t4 Part 7 \lan.rging Glohal L)perations , ' l)efine each of the following terms: a. lvtultinational corPoration b. Exchange rate; fixed exchange rate system; floating exchange rate c. Tracle deficit; devaluation; revaluation d. Exchange rate risk; convertible currency; pegged exchange rate e. Interest rate parity; purchasing power parity f. Spot rate; forward exchange rate; discount on forward rate; premium on forward rate g. Repatriation of earnin5ls; political risk h. Eurodoliar; Eurobond; international bond; foreign bond i. The euro r . , Under the fixed exchange rate system, what was the currency against which all other currenc)' values were defined? WhY? Exchange rates fluctuate under both the fixed exchange rate and floating exchange rate systemsl What, then, is the difference berr'veen the two systems? :. ,r If tire Swiss fianc depreciates against the U.S. dollar, can a dollar buy more or fewer Swiss francs as a result? . ,:,. If the Llnited States imports more goods from abroad than it e.xports' thenforeigners will i."a-t" h;; " iurpluJof LI.S. dofiars. What will this do to the value of the dollar with respect to foreign c'urrencies? What is the corresponding effect on foreign investments in the United States? at home? rt ', Should tirms require higher rates of return on fbreign projects than on identical projects located at home? ExPlain. ,, t,: What is a Eurodollar? If a French citizen deposits $10,000 in ClTase Bankin NewYork, have Eurodollars been created? What if the deposit is made in Barclays Bank in London? Chase's Paris branch? Does the existence of^the Eurodollar market make the Federal R.r.*.', job of controlling U.S. interest rates easier or more difficult? Explain. r i ' ,i Does interest rate parity imply that interest rates are the same in all countries? , r;.:: W might purchasing power parity fail to hold? 1.1:,:. :; Suppose the exchange rate between U.S. dollars and euros is €0.98 = $1.00 and the Cross Rares .*.hurrg. rate between the U.S. doliar and the Canadian dollar is $1.00 = C$1.50. What is the cross rate of euros to Canadian dollars? i17.1) At today's spot exchange rates I U.S. dollar can be exchanged for 9 Mexican pesos or for Cross Rates 111.23 |apanese yen. You have pesos that you would like to exchange for yen. What is the cross rate between the yen and the peso; that is, how many yen would you receive for every Peso exchanged?