How would the government and markets react to correct

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Reference no: EM133728783

Homework: Optimal Capital Structure in a Saudi Market- International Finance

Learning Outcomes:

1. Recognize the process and techniques used to make international investment decisions.
2. Describe the role of exchange rates and why currency values fluctuate.
3. Analyze methods used to manage risk in the global markets.

Task

I. Assume Saudi Arabia has a balance of payments surplus. How would the government and markets react to "correct" this imbalance under a fixed exchange rate regime? Explain in your own words.

II. Optimal capital structure in a Saudi market is determined by many factors. Is there a single best debt ratio for a firm. If so, what is it? Does there appear to be a range for optimal capital structure for Saudi firms? If so, what is it? Explain in your own words.

III. Assume you are manager in a big Saudi Firm. In what condition you will use balance sheet hedge? Give at least two examples of when such a hedge could be justified.

Reference no: EM133728783

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