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Discuss the twin agency problem

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Reference no: EM132308087

Question 1: Discuss the twin agency problem. What measures can reduce the problem?

Question 2: Discuss and differentiate between stakeholder capitalism model and shareholder wealth maximization model.

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 company purchasesinsurancefroma UK based insurance company.
• An Australian resident purchases a laptop made in Japan from an Australian retailer.
• A USfirm acquires 100% shares of an Australian Telecom company.
• An Australian firm imports fruits from a Malaysiansupplier.
• A UK firm pays the salary of its executive working for a subsidiary in Australia.

Question 4:
Discuss ‘impossible trinity'. Provide and discuss relevant examples.

Question 5:
An Australian company is planning to import a new machine and is making a choice between three international suppliers. The following information are available:

Supplier Location

Quoted Price

Shipping Cost

Japan

¥2,800,000

¥100,000

Canada

C$40,000

C$400

Germany

€25,000

€250

The following exchange rate information are available:
Spot exchangerate between Australian Dollar and US Dollar: $0.7100/A$
Spot exchange rate between US Dollar and Japanese Yen: ¥110/$
Spot exchange rate between Euro and US Dollar: $1.2500/€
Spot exchange rate between Canadian Dollar and US Dollar: $0.7400/C$

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 Japanesecar now costs ¥2,200,000, while an identical German car costs €35,000. Suppose, the relevant spot exchange ratesare now¥88.04/A$ and €0.6404/A$ and the expected inflation rates in Australia, Japan and Germany are respectively 2.5%, 0% and 1.4%.What will be the Australian Dollar price of these cars 1 year from nowfor 100% exchange rate pass through?

Question 7:

John is a US based Forex trader. He focuses principally on the Japanese Yen/USDollar (¥/$) rate. The current spot rate is ¥110/$. After considerable study, he concludes that the exchange rate, in the coming 60 days, will probably be about ¥125/$. He has the following options on the Japanese Yen to choose from:

Option

Strike Price

Premium

Put on ¥

¥115/$

$0.000032/¥

Call on ¥

¥115/$

$0.000041/¥

Discuss whether he should buy a Put on ¥ or Call on ¥ and determine his net profitif the spot rate at the end of the 60 days is ¥122/$.

Question 8:
Discuss how intervention may occur in the foreign exchange market. In your discussion, also indicate the pros and cons of such intervention.

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 £0.6221/A$ and A$1.64/€. On a later date, the exchange rates were respectively £0.6505/A$ and A$1.58/€. 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 €2,000,000 account receivable from a Spanish customer in 2 months. The current spot exchange rate between Australian Dollar (A$) and Euro (€) is €0.7070/A$. The Australian organization expects that the spot rate in 2 months will be €0.7570/A$. The 2-month forward exchange rate is €0.7250/A$. The Australian Dollar (A$) 2-month borrowing rate is 5.00% per annum and the Australian Dollar (A$) 2-month investment rate is 2.50% per annum. The Euro (€) 2-month borrowing rate is 4.55% per annum and the Euro (€) 2-month investment rate is 2.00% per annum. The organization's weighted average cost of capital is 8% per annum. The organization is considering three hedge positions: remaining unhedged, forward market hedge and money market hedge. Which one of these three hedge positions should the organization adopt?

Text book: Multinational Business Finance Global Edition (14e) (2016) Authors: Eiteman, DK, Stonehill, Al, Moffett, MH

Reference no: EM132308087

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Reviews

len2308087

5/17/2019 3:40:41 AM

Self-management (inherent) The assessment is typed and submitted on-time. Ethical and Professional Responsibility (inherent) Academic integrity is strictly followed. Any ideas or sources or information or figures or data used from existing resources or research are properly cited and the reference list indicates the resources in proper manner.

len2308087

5/17/2019 3:40:36 AM

80% - 100% (of allotted marks) Knowledge and Communication (Discussion Questions) A specific response, demonstrating knowledge and understanding of the key issues associated with the question. Examples and/or relevant research have been cited and critical reflection skills have been demonstrated. The arguments presented are logical and convincing. Overall, presented well and there are not many grammar or spelling error issues. Knowledge and Communication (Math Problems) All math calculation steps are shown including the formula, values inserted in the formula, and the final answer. Correct approach and values have been considered for most or all parts of the calculation.

len2308087

5/17/2019 3:40:29 AM

For Q10, please note the account payable and account receivable hedging samples outlined within week 7 materials (and the book). Again, please note that each month is assumed to be comprised of 30 days. When determining interest per period, please consider a year to be comprised of 360 days. Thus, if annual interest rate is 14%, then interest at one month will be 14%/12 = 0.0117 (we divide by 12 since one-month, meaning 30 days, is 1/12-th of the whole year, that is 360 days). Similarly, if annual interest rate is 14%, then interest at 6-months will be 14%/2 = 0.07 (we divide by 2 since 6-month, meaning 180 days, is 1/2 of the whole year, that is 360 days).

len2308087

5/17/2019 3:40:21 AM

Q3 is based on Chapter 3. Please note the solutions to Q13 for Chapter 3 on Moodle. Q5, Q6 and Q9 are based on weeks 3-4. Notably, 1 month is considered as 30 days in this unit. Also, note the differences in formula for direct or indirect quotes; and considering the home currency given, please judge which formula to use. Some Q9 relevant samples are also covered in week 6 – thus, please note the workshop materials for that week also. For Q6, please also note that exchange rates entailing Japanese Yen are quoted to 2 decimal places and that involving major currencies are quoted to 4 decimal places. Thus, please consider similar convention when determining intermediate calculation values.

len2308087

5/17/2019 3:40:14 AM

For the theory questions Q1, Q2, Q4 and Q8, there is no word limit and no penalty is applied regarding word length. However, a response with maximum 350 words for each question may be reasonable. For each question, please note the relevant details from the book, workshop documents and slides. Please also note relevant outside resources (journals, books, conferences, grey literature) and cite if appropriate. Also think about the questions asked and write in own style. Q1 is based on Chapter 1. For Q2, please note Chapter 4. For Q4, the details are in Chapter 5 and a bit in Chapter 6. Lastly, Chapter 9 covers the Q8.

len2308087

5/17/2019 3:40:02 AM

The assessment is to be typed, and you are to show any relevant formula and calculation steps. You can show your calculations through an Equation Editor, MathType or similar tools. Do not round until the final answer is reached and then show answers to two decimal places. If the answer is a percentage, convert from decimal format to percentage with two decimal places. For discussion questions, you are to use the library and online resources further to the prescribed textbook. The referencing style needs to be consistent, and you are to adopt proper academic writing process Minimum of 15 references(APA Style Academic references)

len2308087

5/17/2019 3:39:53 AM

This is an assessment to be addressed individually. You are to respond to the questions and upload your submission as a doc/docx/rtf format through respective submission link on Moodle. This assessment item consists of 10 questions and problems, based on weeks 1 to 7 inclusive. Each question is worth 10 marks and the total worth is 100 marks. The marks achieved will be weighted to 20%.

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