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Switzerland and sells it in the Eurozone. At the beginning of 2015, the exchange rate between the euro and the Swiss franc (Fr) is Fr1. The expected...
On January 15, 2015, the Swiss National Bank (SNB) removes the exchange rate cap and the
euro falls immediately to Fr1.00/€ and is expected to stay at around this level for the feasible
future. Assuming complete exchange rate pass-through, what is the relative price of Swiss
exports in the Eurozone?
Your answer: ___________________. (Keep two decimals.)
Assuming that the inflation rates in the Eurozone and in Switzerland have been 1.5% and
are expected to remain at 1.5% for the foreseeable future, what is the real exchange rates of
the Swiss franc after January 15, 2015?
Your answer: ___________________. (Keep two decimals.)
Assume that the subsidiary keeps sales price and cost per unit in Swiss franc unchanged and
the price elasticity of demand for the product in the Eurozone is 2. What is the PV of the
expected operating cash flows from the Swiss subsidiary after the exchange rate changed?
Your answer: €___________________. (Keep two decimals.)
Assume that the subsidiary chooses to price to market and keeps its sales price per unit in
euro unchanged, and everything else the same. What is the PV of the expected operating
cash flows from the Swiss subsidiary after the exchange rate changed?
Your answer: €___________________. (Keep two decimals.)
