Assume a U.S.-based subsidiary wants to raise $5 million by issuing a bond denominated in Australian dollars. The current exchange rate is $0.77. How many Australian dollars does the MNC need to obtain the $5 million needed? If Australian bonds have a face value of A$ 10,000, how many bonds do they have to issue?

Assume a U.S.-based subsidiary wants to raise $5 million by issuing a bond denominated in Australian dollars. The current exchange rate is $0.77. How many Australian dollars does the MNC need to obtain the $5 million needed? If Australian bonds have a face value of A$ 10,000, how many bonds do they have to issue?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

See similar textbooks

Similar questions

1. Assume in the US a $100,000 bond earns $10,000 a year. In Germany a €50,000 bond earns €7,000 a year. a) If the expected exchange rate a year from now is $1.44 $/€, what would the current exchange rate need to be to keep this market in equilibrium?e b) If the current exchange is $1.1 $/€, what would the expected exchange rate need to be to keep this market in equilibrium? Give both the direct and indirect exchange rate. +
A British money financier is managing €10 million and wants to invest it in safe bonds either in France or United Kingdom for one year. The one-year interest rate on such assets is 0.63% in Britain and 0% in France. The one-year forward euro-pound exchange rate is 1.121 €/£ (euros per pound). Assume that the covered interest parity condition (CIP) always holds and to ensure consistency, treat the UK as home country. The current euro-pound spot exchange rate is calculated to be 1.1281... Suppose the financier believes that the uncovered interest parity (IP) condition also holds and the foreign exchange market participants are acting based on correct expectations about future spot euro-pound exchange rate in the sense that their expectations predict the future rate without bias. Given these assumptions, what is the one-year expected spot euro-pound exchange rate prevailing in the market? Now suppose that the financier believes that while the uncovered interest parity (IP) condition…
Assume that 90-day U.S. securities have a 2.9% annualized interest rate, whereas 90-day Canadian securities have a 3.2% annualized interest rate. In the spot market, 1 U.S. dollar can be exchanged for 1.25 Canadian dollars. If interest rate parity holds, what is the 90-day forward rate exchange between U.S. and Canadian dollars (in terms of Canadian dollars per U.S. dollar)? C$ 1.1258/$1 C$ 1.2509/$1 C$ 1.3760/$1 C$ 1.5637/$1 C$ 1.6637/$1
Is it profitable for a US bank to issue $200 million of one-year bonds in the US at 6.5% to invest it in one-year Brazilian government bond paying an annual interest rate of 8%, if current spot rate is 1.0537 BRL/USD and expected spot rate in a year from now is 0.9875 BRL/ USD? Does it make sense to use forward contract?
Assume that 90-day U.S. securities have a 2.9% annualized interest rate, whereas 90-day Canadian securities have a 3.2% annualized interest rate. In the spot market, 1 U.S. dollar can be exchanged for 1.25 Canadian dollars. If interest rate parity holds, what is the 90-day forward rate exchange between U.S. and Canadian dollars (in terms of Canadian dollars per U.S. dollar)? C$ 1.1258/$1 C$ 1.2509/$1 C$ 1.3760/$1 C$ 1.5637/$1 C$ 1.6637/$1 2. A currency trader observes that in the spot exchange market, 1.00 U.S. dollar can be exchanged for 11.65 Mexican pesos or for 7.213 Danish krone. What is the cross-exchange rate between the peso and the krone; that is, how many pesos would you receive for every krone exchanged?
Assume the following information:U.S. investors have $1,000,000 to invest: 1-year deposit rate offered by U.S. banks = 10% 1-year deposit rate offered on British pounds = 13.5% 1-year forward rate of Swiss francs = $1.26 Spot rate of Swiss franc = $1.30 Given this information: A. interest rate parity exists and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically. B. interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield below what is possible domestically. C. interest rate parity exists and covered interest arbitrage by U.S. investors results in the same yield as investing domestically. D. interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically.
Assume that a bank has assets located in Germany worth €390 million earning an average of 6 percent. It also holds €190 in liabilities and pays an average of 4 percent per year. The current spot rate is €1.50 for $1. If the exchange rate at the end of the year is €2.00 for $1: a. What happened to the dollar? Did it appreciate or depreciate against the euro (€)?b. What is the effect of the exchange rate change on the net interest margin (interest received minus interest paid) in dollars from its foreign assets and liabilities?c. What is the effect of the exchange rate change on the value of the assets and liabilities in dollars?
Assume that a bank has assets located in Germany worth €150 million earning an average of 8 percent. It also holds €100 in liabilities and pays an average of 6 percent per year. The current spot rate is €1.50 for $1. If the exchange rate at the end of the year is €2.00 for $1, ( LG 19-1) a. What happened to the dollar? Did it appreciate or depreciate against the euro (€)? b. What is the effect of the exchange rate change on the net interest margin (interest received minus interest paid) in dollars from its foreign assets and liabilities? c. What is the effect of the exchange rate change on the value of the assets and liabilities in dollars?
Assume that 90-day U.S. securities have a 3.5% annualized interest rate, whereas90-day Canadian securities have a 4% annualized interest rate. In the spot market,1 U.S. dollar can be exchanged for 1.4 Canadian dollars. If interest rate parity holds,what is the 90-day forward exchange rate between U.S. and Canadian dollars?
(b)Suppose that the annual interest rate is 5% in the U.S and 8% in the UK and that the spot exchange rate is $1.80 to the UK pound sterling. Consider that the forward exchange rate , with one -year maturity, is $1.78 to the pound sterling. If an arbitrager has the capacity to borrow either $1,000,000 or the pound sterling equivalent at the current spot foreign exchange rate, (b1)Evaluate the feasibility of covered interest arbitrage for this investor. (b2)Determine the profit that the investor could earn upon conclusion of the investment process. (b3)Briefly discuss the realignment process that would close the opportunities for further arbitrage.
Assume the following information: U.S. deposit rate for 1 year U.S. borrowing rate for 1 year New Zealand deposit rate for 1 year New Zealand borrowing rate for 1 year New Zealand dollar forward rate for 1 year New Zealand dollar spot rate = $.49 Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$500,000 in 1 year. You are a consultant for this firm. = 3% = 4% Group of answer choices $235,841. $264,000. $245,000. $236,127. = 6% = 7% = $.48 Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge?
2. Money Market Hedge on Receivables Assume that Parker Company will receive 200,000 Canadian dollars in 360 days. Assume the following interest rates: 360-day borrowing rate 360-day deposit rate U.S. 6% 4% Canada 5% 3% Assume the forward rate of the Canadian dollar is $.80 and the spot rate of the Canadian dollar is $.78. If Parker Company uses a money market hedge, how much U.S. dollars will it receive in 360 days from its Canadian dollar receivable? (round to whole dollars) (2 points)