Case-in-brief - Argentina Currency DevaluationYour company is currently operating in Argentina. Management is concerned to what extent the Argentine peso will be devalued. Itwants to examine two scenarios: one where the currency drops 15% and one where it drops 26%. Currently, the exchange rate is 94pesos (ARS$ 94) to 1 US dollar (US$1).Contribution after marketing in Argentina was 21% of sales (see Exhibit). Your goal is to maintain this percentage.Exhibit: Argentina Contribution after Marketing (ARS$ Argentine Pesos)Unit SalesManufacturer SalesCostsGross MarginTotal MarketingCont bution after MarketingUnits46ARS325.9 100%183.3142.673.369.3%56%44%22%21%QUESTION 1How would the devaluation of the Argentine peso (ARSS) affect your contribution in the home currency (US$)?Current contribution in USD (home currency): USD $ 0.000Contribution in USD after 15% drop: USD $ 0.000Contribution in USD after 26% drop: USD $ 0.000MillionsMillionMillionGo to last question

The question is asked for determining the effect of changes in the exchange rate on the total…

Answered: Case-in-brief - Argentina Currency…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 12QA

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Case-in-brief - Argentina Currency Devaluation Your company is currently operating in Argentina. Management is concerned to what extent the Argentine peso will be devalued. It wants to examine two scenarios: one where the currency drops 15% and one where it drops 26%. Currently, the exchange rate is 94 pesos (ARSS 94) to 1 US dollar (US$1). Contribution after marketing in Argentina was 21% of sales (see Exhibit). Your goal is to maintain this percentage. Exhibit: Argentina Contribution after Marketing (ARS$ Argentine Pesos) Unit Sales Manufacturer Sales Costs Gross Margin Total Marketing Contribution after Marketing QUESTION 2 Units 46 ARS 325.9 100% % 183.3 56% 142.6 44% 73.3 69.3 22% 21% How much more sales revenue would be needed in Argentina to maintain your current contribution after marketing? Additional Manufacturer Sales in Argentine Pesos after 15% drop: 0.0000 Additional Manufacturer Sales in Argentine Pesos after 26% drop: 0.000 Submit Assignment
Case-in-brief - Chapter 6 - Argentina Currency Devaluation Your company is currently operating in Argentina. Management is concerned to what extent the Argentine peso will be devalued. It wants to examine two scenarios: one where the currency drops 15% and one where it drops 25%. Currently, the exchange rate is 92 pesos (ARS$ 92) to 1 US dollar (US$1). Contribution after marketing in Argentina was 21% of sales (see Exhibit). Your goal is to maintain this percentage. Exhibit: Argentina Contribution after Marketing (ARS$ Argentine Pesos) Unit Sales Manufacturer Sales Costs Gross Margin Total Marketing Units ARS % 46 325.9 100% 183.3 56% 142.6 44% 73.3 22% Contribution after Marketing 69.3 21% QUESTION 2 How much more sales revenue would be needed in Argentina to maintain your current contribution after marketing? Additional Manufacturer Sales in Argentine Pesos after 15% drop: 0.000 Additional Manufacturer Sales in Argentine Pesos after 25% drop: 0.000
Sing Tao wants to import goods for 2.54 million Australian dollar (A$) and pay to Australian exporter, WA Co., in one year. Sing Tao also wants to minimise its exchange rate risk for the payment of A$2.54 million by taking the forward market hedging strategy. Calculate the Chinese yuan (CNY) costs using the forward market hedging strategy based on the information in Table 1. (Enter the whole number without sign and symbol).
Sing Tao wants to import goods for 2.12 million Australian dollar (A$) and pay to Australian exporter, WA Co., in one year. Sing Tao also wants to minimise its exchange rate risk for the payment of A$2.12 million by taking the money market hedging strategy. Calculate the Chinese yuan (CNY) costs using the money market hedging strategy based on the information in Table 1. (Enter the whole number without sign and symbol). TABLE 1 For Chinese yuan (CNY) Spot rate A$0.3213/CNY One-year forward rate A$0.2381/CNY One-year CNY deposit and borrowing rate 3.21% One-year call options Exercise price = A$0.31 Premium = A$0.02 One-year put options Exercise price = A$0.53 Premium = A$0.03 For Australian dollar (A$) Spot rate CNY3.4201/A$ One-year forward rate CNY1.213/A$ One-year A$ deposit and borrowing rate 2.31% One-year call options Exercise price = CNY2.34 Premium = CNY0.12…
Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$2.00 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.80 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F $2,000,000.00 at $0.80 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$2,000,000.00×$0.80 per Fijian dollars =$1,600,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.67 per Fijian dollar. If this were the case the outside of the contract only (U.S. dollars) would be needed to exchange for the required F$2,000,000.00.
XYZ Corporation imports goods from China with a total invoice value of $10,000,000. The exchange rate between the US dollar (USD) and the Chinese yuan (CNY) is 1 USD = 6.95 CNY. However, due to a temporary market fluctuation, XYZ Corporation negotiates a discount of 2% on the invoice value. What is the total amount in Chinese yuan that XYZ Corporation needs to pay after applying the discount?
Suppose that a US-based company is buying Chinese goods. Current exchange rate for Chinese Yuan is 0.15 USD. The price of goods is ¥13,000 per unit. The company is buying 800 units per year with a fixed contract for the next two years. Suppose that Chinese Yuan appreciate to 0.2 USD in the next year. The US importer will respond to this by lowering the demand to 600 units in the third year. What cash flow will be reflected on the balance of payments at the end of the third year? Your Answer:
Suppose, Company ABC is U.S. based company and has a British subsidiary. It is expected that the subsidiary will send 10 million pounds in two months to the Company. Thus, Company ABC is concerned that in the next two months the pound will depreciate in value i) Why did Company ABC entered into the currency forward contract by taking short position? ii) Suppose the Forward rate of the pound is $1.357 per pound, and the contract will expire after two months. At delivery/settlement date (two months later), the spot exchange rate is $1.2375 per pound. After two months, how much will Company ABC receive in dollars iii) In the case of cash settlement, how much will Company ABC receive from the dealer? iv) A Firm buys an FRA on 90-day LIBOR expiring in 30 days with Notional principal of $20 million. The contract rate is 10%. If at expiration, LIBOR is 8%, how much will the long has to pay to the short i.e., seller of FRA. What happens if, at expiration, LIBOR is 12%?
Lee Junho who is a currency trader in Japan observers the following marketconditions:• Annual interest rate in Japan: 1.5% per annum• Annual interest rate in France: 7.0% per annum• Current spot exchange rate: ¥ 114.4733/€• One-year forward exchange rate: ¥ 110.2423/€• No transaction costs If Lee Junho can borrow ¥100,000,000, specific the transactions he may carryout in order to make some arbitrage profit and calculate the amount of theprofit
A Brazillian coffee exporter has found a market for his coffee to the tune of 1,800,000 Euros. At the time of sale, the spot rate between Kenya shillings and Euros was ksh 126/Euro. The payment was expected after one month when the deal would be concluded. The interest rates in Kenya were 9% while in Germany they were 7%.per annum Required: 1. Advise the exporter after ascertaining the domestic currency appreciation or depreciation. 2. Suggest plausible non-financial hedging techniques to shield the exporter
Your company sells specialized electronic components to South Africa payable in South African Rands (ZAR). The following information is available on the $/ZAR exchange rates expected to prevail at the end of the year. The local prices of the electronic components are affected by the value of ZAR as shown below. Qi (Prob) Si Local Price (P’i) Pi (price in dollars) 0.20 $0.0550 ZAR 30,000.00 $1,650.00 0.30 $0.0600 ZAR 27,500.00 $1,650.000.30 $0.0650 ZAR 25,000.00 $1,625.00 0.20 $0.0700 ZAR 22,500.00 $1,575.00 a. What is relationship, as measured by β, between $/ZAR rates and the component prices in US dollars. b. Explain how you can hedge the above exposure using currency futures. The one-year forward rate…
Assume the euro’s spot rate is presently equal to $1.00. All of the following firms are based in New York and are the same size. While these firms concentrate on business in the U.S., their entire foreign operations for this quarter are provided here. Company A expects its exports to cause cash inflows of 9 million euros and imports to cause cash outflows equal to 3 million euros. Company B has a subsidiary in Portugal that expects revenue of 5 million euros and has expenses of 1 million euros. Company C expects exports to cause cash inflows of 9 million euros and imports to cause cash outflows of 3 million euros, and will repay the balance of an existing loan equal to 2 million euros. Company D expects zero exports and imports to cause cash outflows of 11 million euros. Company E will repay the balance of an existing loan equal to 9 million euros. Which of the five companies described here has the highest degree of translation exposure?

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