Managerial Finance

" ^ ^ ^,l,qf a ra,r *r[^M.* *.fu ^-, c a cQ chapter t, -' --' uurtir=atioriai Financial Managemenr pn6^eart ?A1nrn, t1*' tfi13 ? 1"4- b E{At paa,rrn^en/ w'?, Interest Rate Parity {lrut Purchasing Power ParitY fierQ Exchange Rate intermediateFroblerns 5-$ (17-s) Currency Appreciation 117-6t Cross Rates (77-4 Interest Rate ParitY lL7-81 Purchasing PowerParity Challenging Probiems 9-1,* (17-e) Exchange Gains and Losses (17-10) Results of Exchange Rate Changes (17-11.) Spot and Forward Rates The nominal yield on 6-month T-bilts is 7%, while default-free |apanese bonds that mature in 6 months have a nominal rate of 5.57o, In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate? A computer costs $500 in the United States. The same model costs 550 euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? If euros sell for $1.50 (U.S.) per euro, what should dollars sell for in euros per dollar? Suppose that the exchange rate is 0.60 dollars per Swiss franc. If the fianc appreciates l0% against the dollar, how many francs would a dollar buy tomorrow? Suppose the exchange rate between U.S. dollars and the Swiss franc is SFrl.6 = $1 and tlre exchange rate between the dollar and the British pound is f,1 = ii1.50. What then is the cross rate between francs and pounds? Assume that interest rate parity holds. in both the spot market and the 90-day forward market, I |apanese yen equals 0.0086 dollar. In iapan, 90-day risk-free securities yield 4.6%. What is the yield on 90-day risk-free securities in the united States? in the spot market, 7.8 pesos can be exchanged for I u.S. dollar. A pair of headphones costs $15 in the Linited States. If purchasing power parity holds, what should be the price of the same headphones in Mexico? Your Boston-headquartered manufacturing company, Wruck Enterprises, obtained a 50 million-peso loan from a Mexico City bank iast month to fund the expansion of your Monterrey, Mexico plant. When you took out the loan the exchange rate was 10 U.S. cents per peso, but since then, the exchange rate has dropped to 9 U.S. cents Per peso. Has Wruck Enterprises made a gain or a loss due to the exchange rate change, and how much? Note that your shareholders live in the United States. In 1983 the |apanese yen-U.S. dollar exchange rate was 245 yen per dollar, and the dollar cost ofa compact |apanese-manufactured car rvas $8,000. Suppose that now the exchange rate is 80 yen per