Reference no: EM131276375

Pacific Precision is a Hong Kong-based exporter of machine tools. The company's European sales director, Jacque Mayal, has been criticized of late for his performance. He disagrees, arguing that sales in Europe have grown steadily in recent years. Based on the information given, calculate the growth in sales in euro in Europe.

	2007	2008
Total net sales, HK$	200	250
Percent of total sales from Europe	45%	45%
Average exchange rate, HK$/€	7.5	10

Use the following return distributions for the two funds for the next 3 questions.

Harrison Equipment of Denver, Colorado purchases all of its hydraulic tubing from manufacturers in mainland China. The total hydraulic system costs $800,000. The company is now worried that all of the hydraulic tubing that goes into the systems (making up 20% of their total costs) will be hit by the potential 12%revaluation of the Chinese yuan.The current exchange rate is yuan8.68/$.

How much does the hydraulic tubing cost in yuan at the current exchange rate?

How much will the hydraulic tubing cost in dollars after the 12% revaluation of yuan?

What is the percentage increase in total hydraulic system costs due to the revaluation?

Answer the next 3 questions based on the information.
The following table summarizes a country'scurrent account in a given year.

	Millions of US dollars
Goods: exports	50,000
Goods: imports	60,000
Services: credit	15,000
Services: debit	17,000
Income: credit	6,000
Income: debit	20,000
Current transfers: credit	2,000
Current transfers: debit	3,000

What is the balance of trade of this country?

What is the balance on goods and services of this country?

What is the balance on current account of this country?

The following table summarizes a country's balance of payments. Answer the next 2 questions based on the information.

	Billions of US dollars
Current account balance	-200
Capital account balance	5
Financial account balance	180
Net errors and omissions	7
Reserves and related items	8

Is this country experiencing a net capital inflow or outflow?By how much?

Hasthis country's official reserve increased or decreased? By how muc

The following information holds for the next threeproblems:

Suppose the following information is available for a country in a given year.

	Billions of US dollars
S(Private Savings)	$1000
I (Private Domestic Investment)	$800
G (Government Spending)	$700
T (Tax Revenues)	$600

 

How much is the budget deficit of the country?

How much is the current account balance of the country?

What is the percentage of the domestic savings that were used to support the net exports?

The following information holds for the next twoproblems:

The SF/$ spot exchange rate is 1.25 and the 180 forward exchange rate is 1.30.

What is the forward premium (discount) of the dollar against SF for delivery in 180 days?

What is the forward premium (discount) of SF against the dollar for delivery in 180 days? 

If according to the law of one price the current exchange rate of dollars per British pound is $1.43/£, then at an exchange rate of $1.28/£, the pound is over/under-valued by _________%.  

One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$. Since that time the rate of inflation in the U.S. has been 4% greater than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately _____.

The following information holds for the next threeproblems:

Sony of Japan produces LCD monitors and exports them to the United States. Last year the exchange rate was 130¥/$ and Sony charged $150 per LCD monitor. Currently the spot exchange rate is 110¥/$ and Sony is charging $170 per LCD monitor.

 

What is the rate of appreciation of the Japanese yen when the exchange rate changed from 130¥/$ to 110¥/$.

What is the implied exchange rate that was applied when Sony is charging $170 per LCD monitor? Assume the yen cost of a LCD monitor stays the same.

What is the degree of pass through by Sony of Japan on their LCD monitors?   

The following information holds for the next three problems:

Suppose that the annual interest rate is 5% in the US and 3.5% in Germany, and that the spot exchange rate is $1.2/euro and the forward exchange rate, with one-year maturity, is $1.25/euro.  Assume that an arbitrager can borrow up to $2,000,000 and taking a covered interest arbitrage position.

If the arbitrager borrows $2,000,000, converts in into euro and invest in the German market, how much euro will she have at the end of the year?

 How much is the net profitin dollar in one year based on the covered interest arbitrage?

If an equilibrium with no arbitrage opportunities is to be restored, what should be the US interest rate? (Assume all the other numbers remain the same.)

If the annual interest rate is 8% in the US and 6% in Germany, then $ is expected to ____ against euro by ______%.

The following information holds for the next two problems:

Suppose that a Big Mac costs $2.50 in the US and 300 yen in Japan today. If the actual exchange rate is yen130/$.

 How much is the Big Mac PPP exchange rate?

According to the Big Mac prices, the Japanese yen is over/under valuedcompared to US $ by _____%.

Suppose the inflation is expected to be 5% in the US and 3% in the UK in the next year. Then, US dollar is expected to _________________ against British pound.

            (a) depreciate by 2%            (b) depreciate by 5%            (c) appreciate by 2%            (d) appreciate by 5%

Suppose the inflation is expected to be 15% in Brazil and 2% in the US in the next year. Suppose today's exchange rate between the Brazilian real and US dollar is R$2.7/$. What would you forecast the exchange rate to be one year from today?

The following information holds for the next two problems:

Suppose that on January 1 a firm in Mexico borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum (bullet repayment of principal). During the year U.S. inflation is 2.00% and Mexican inflation is 12.00%. The loan was taken when the spot rate was Peso 3.40/US$. At the end of the one year loan period the exchange rate was Peso 5.80/US$

How much does the firm have to pay back in the Mexican peso one year later?

What is the cost to the firm of the loan in Mexican peso's (percent)?

Howard borrows ¥5,000,000 for 6 months at an annual rate of .60% and uses the proceeds to invest in the U.S. money market at an annual rate of 4.50%. If the spot rate today is ¥115/$ and the spot rate in 6 months is ¥113/$ Howard's net proceeds will be ____.