Question

1. The spot ER between the Chinese remnimbi and the Japanese yen is that each remnimbi buys 10 yen. If the interest rates are 2% in japan and 6% in China, what is the forward ER? EXPLICATE.

2. Expound on operating FE exposure. Assume we have a foreign affiliate in Thailand and our parent firm in the States, and the Thai baht revalues relatively to the US $. Also, assume we have 2 affiliates in the UK and in Greece. Assume that the currencies of our 2 affiliates (the pound and the euro) devalue relatively to the $. If you want to decrease any FE negative effects, what would be appropriate to do in terms of sourcing , production and sales in any of the aforementioned currencies.? You may produce, source and sell in any of the above nations.

Solution Preview

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

1:
Current spot rate is: 1 Remnimbi is equivalent to 10 yen.
Interest rate in Japan = 2%
Interest rate in China = 6%
Since the interest rate in China is higher than Japan, the Chinese Remnimbi would depreciate so that the interest rate gains are offset by exchange rate loss and the real interest rate stays the same, as per the theory of interest rate parity....

This is only a preview of the solution. Please use the purchase button to see the entire solution

$13.00

or free if you
register a new account!

Related Homework Solutions

WACC Calculation
Homework Solution
$8.00
Business
Finance
WACC
Return
Rate
Common Stock
Preferred Stock
Corporate
Bonds
Cost
Tax
Finance Questions
Homework Solution
$45.00
Business
Finance
Financial Goals
Fund
Value
Money
Rate
Investment
Return
Growth
Annual
Savings
Interest
Equivalent Annual Cost Calculation
Homework Solution
$10.00
Business
Finance
Equivalent
Annual
Cost
EAC
Investment
System
Salvage
Value
Maintenance
Return
Depreciation
Tax
Finance Questions
Homework Solution
$68.00
Business
Finance
Budget
Justification
Cutbacks
Cost
Benefit
Analysis
Life
Cycle
Costing
Finance Questions
Homework Solution
$75.00
Business
Finance
Price
Earnings
EPS
Stock
Dividend
Equity
Florenthal
Lesser
Bottine and Despotakis
Finance Questions
Homework Solution
$43.00
Business
Finance
Time
Value
Money
Cost
Payment
Variable
Compounding
Get help from a qualified tutor
Live Chats