英文版罗斯公司理财习题答案Chap020(12页DOC).docx

最新资料推荐CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than in the spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buy one dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This is the relative PPP relationship.3.a.The Australian dollar is expected to weaken relative to the dollar, because it will take more A$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are the same.4.A Yankee bond is most accurately described by d.5.No. For example, if a countrys currency strengthens, imports become cheaper (good), but its exports become more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving on transportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. More generally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8.a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the same amount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relative to the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isnt reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9.a.American exporters: their situation in general improves because a sale of the exported goods for a fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British governments intentions result in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscal expansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit any arbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period and whether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investment provides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, a project in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when the foreign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rate and the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in the currency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1.Using the quotes from the table, we get:a.$50(0.7870/$1) = 39.35b.$1.2706c.5M($1.2706/) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/1) = P13.9801/ This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah. 2.a.You would prefer £100, since: (£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find the amount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489c.Using the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1 The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13.a.F180 = ¥104.93 (per $). The yen is selling at a premium because it is more expensive in the forward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forward market than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen in the future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4.a.The U.S. dollar, since one Canadian dollar will buy: (Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74 Among the reasons that absolute PPP doesnt hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market than in the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takes fewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5.a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the ¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216 Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568 You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will use is:RFC = (FT S0)/S0 + RUSUsing this relationship, we find:Great Britain: RFC = (£0.5394 £0.5359)/£0.5359 + .038 = 4.45%Japan: RFC = (¥104.93 ¥106.77)/¥106.77 + .038 = 2.08%Switzerland:RFC = (SFr 1.1980 SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have: $30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be: ($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05 We should invest in U.S.8.Using the relative purchasing power parity equation:Ft = S0 × 1 + (hFC hUS)t We find:Z3.92 = Z3.841 + (hFC hUS)3 hFC hUS = (Z3.92/Z3.84)1/3 1 hFC hUS = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. The production cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000$145 (S$168.50)/(S$1.6548/$1) Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000$145 (S$168.50)/1.1(S$1.6548/$1) Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000$145 (S$168.50)/0.9(S$1.6548/$1) Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/ST ST = S$1.1621/$1 ST = .2978 or 29.78% decline10.a.If IRP holds, then:F180 = (Kr 6.43)1 + (.08 .05)1/2 F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high. Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552 Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506 Repay the Kr 1 loan, ending with a profit of:Kr1.04506 Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)1 + (.08 .05)1/2 F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We can rearrange the international Fisher effect as follows to answer this question: RUS hUS = RFC hFC hFC = RFC + hUS RUSa.hAUS = .05 + .035 .039 hAUS = .046 or 4.6%b.hCAN = .07 + .035 .039 hCAN = .066 or 6.6%c.hTAI = .10 + .035 .039 hTAI = .096 or 9.6%12.a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the future than it does today.b.hUS hJAP » (¥129.76 ¥131.30)/¥131.30 hUS hJAP = .0117 or 1.17%(1 .0117)4 1 = .0461 or 4.61%The approximate inflation differential between the U.S. and Japan is 4.61% annually.13.We need to find the change in the exchange rate over time, so we need to use the relative purchasing power parity relationship:Ft = S0 × 1 + (hFC hUS)T Using this relationship, we find the exchange rate in one year should be:F1 = 2151 + (.086 .035)1 F1 = HUF 225.97The exchange rate in two years should be:F2 = 2151 + (.086 .035)2 F2 = HUF 237.49And the exchange rate in five years should be:F5 = 2151 + (.086 .035)5 F5 = HUF 275.7114.Using the interest-rate parity theorem:(1 + RUS) / (1 + RFC) = F(0,1) / S0We can find the forward rate as:F(0,1) = (1 + RUS) / (1 + RFC) S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate and purchasing power parity, the expected exchange rate is:E(ST) = (1 + RUS) / (1 + RFC)T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/ = $1.2282/E(S2) = (1.0480 / 1.0410)2 $1.22/ = $1.2365/E(S3) = (1.0480 / 1.0410)3 $1.22/ = $1.2448/Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = $12,000,000($1.22/) = $14,640,000.00Year 1 cash flow = $2,700,000($1.2282/) = $3,316,149.86Year 2 cash flow = $3,500,000($1.2365/) = $4,327,618.63Year 3 cash flow = (3,300,000 + 7,400,000)($1.2448/) = $13,319,111.90And the NPV of the project will be:NPV = $14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316.a.Implicitly, it is assumed that interest rates wont change over the life of the project, but the exchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. The equation is:EST = (SFr 1.72)1 + (.07 .08)T EST = 1.72(.99)T So, the cash flows each year in U.S. dollar terms will be:tSFrESTUS$027.0M1.7200$15,697,674.421+7.5M1.7028$4,404,510.222+7.5M1.6858 $4,449,000.223+7.5M1.6689$4,493,939.624+7.5M1.6522$4,539,332.955+7.5M1.6357$4,585,184.79And the NPV is:NPV = $15,697,674.42 + $4,404,510.22/1.13 + $4,449,0