The closing case explores the implications of changing currency values at 3M. With about 60 percent of its annual revenues coming from outside the United States, 3M is especially vulnerable to fluctuations in exchange rates. Indeed, 3M believes that adverse currency movements cost the company some $42 million in pretax profits in 2018, and $11 million in 2017. 3M uses various strategies to reduce its exchange rate risk including forward contracts and foreign currency debt.
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Case Summary :Managing Foreign Currency Exposure at 3M
The closing case explores the implications of changing currency values at 3M. With about 60 percent of its annual revenues coming from outside the United States, 3M is especially vulnerable to fluctuations in exchange rates. Indeed, 3M believes that adverse currency movements cost the company some $42 million in pretax profits in 2018, and $11 million in 2017. 3M uses various strategies to reduce its exchange rate risk including forward contracts and foreign currency debt.
1-a) If the dollar
1-b) Should3M hedge against adverse movements on foreign exchange rates? How should it do this?
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- ECN300(524): Balance of Payme X → C www Succonline.ucc.edu.jm/mod/folder/view.php?id=58175 Ο 出口 Home Dashboard My courses Courses ▾ About UCC UCC Online FAQS UCC Library Additional Resources EOSA Resources V ECN300(S24) > Balance of Payments Balance of Payments Mark as done The Government of Jamaica and Public Sector workers have been at odds over outstanding salary payments. The Government indicated that, among other reasons, a sharp increase in salary to public sector workers will have an impact on the country's Balance of Payment. Discuss the impact in no more than 150 words. Previous activity Unit 4-Balance of Trade Jump to Type here to search 2 38 6 MNO 9 WXYZ E acer Next activity Mid Semester Exam 32°C Sunny 12/3/2024Sing Tao wants to import goods for 2.54 million Australian dollar (A$) 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 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). ff1Consider the following fixed borrowing rates available to Pepper Corp and to Truffles Corp in both the British pound (GBP) and the Euro (EUR): GBP rate EUR rate Pepper Corp Truffles Corp 12.90% 9.50% 18.40% 14.00% One firm has an absolute advantage in borrowing in both currencies, but each firm borrows at its comparative advantage and then enters into a swap with a financial intermediary. Under the swap, the financial intermediary makes payments to the firms that each need to cover the loans borrowed at their comparative advantages. Select one: O a. This swap would be a net loss to the financial intermediary. O b. 0.50% p.a. O c. 0.90% p.a. O d. 1.90% p.a. O e. 3.90% p.a. In exchange, the financial intermediary requires payment at 18.90% p.a. from the firm that has a comparative advantage in borrowing the British pound, and it requires payment at 8.90% p.a. from the firm borrowing in Euro. What is the net benefit to the intermediary from such a swap?
- QUESTION 3 The Pineapple Express Co. is a U.S.-based MNC with £100,000 net cash outflows and €100,000 net cash inflows. The Mean People Eaters Co. is also a U.S.-based MNC with €100,000 net cash inflows and £100,000 net cash inflows. Both companies know that the dollar/euro exchange rate moves in the same direction as the dollar/British Pound rate. All inflows and outflows have a 30-day maturity. Which firm has a higher foreign exchange transactions exposure? O a. Pineapple Express Ob. Mean People Eaters Oc. The two firms have about the same level of exposure. Od. Neither firm has any exposure. O e. None of the above QUESTION 4 From the point of view of a U.S. based MNC, which of the following is an example of transactions exposure but not an example of economic exposure? O a. An appreciation of the Swiss franc increases the firm's USS value of Swiss franc receivables. O b. A depreciation of the US$ benefits the firm's domestic and foreign sales because it has a potential price…Suppose interest rates on 1-year deposits & loans in the U.K. equal 1.5%, and interest rates on 1-year deposits and loans in Mexico are 4.5%. Given these interest rates, a trader at AstraZeneca's U.K. bank would always profit from carry trade strategy as long as the % change in the #MXN/GBP (#Mexican pesos/1 GBP) is -- (choose the best answer from below) Group of answer choices less than 3% greater than 4.5% greater than 3% less than 4.5%Practice Question 2: Consider the central bank balance sheet for the country of Riqueza. Riqueza currently has 2,000 million escudos in its money supply, 1,200 million escudos of which is backed by domestic government bonds; the rest is backed by foreign exchange reserves. Assume that Riqueza maintains a fixed exchange rate of one escudo per dollar, the foreign interest rate remains unchanged, and money demand takes the usual form, M/P = L(i)Y. Assume prices are sticky.
- The annual demand for and supply of shekels in the foreign exchange market is given as: Demand = 30,000 8,000e Supply = 25,000 + 12,000e where the nominal exchange rate (e) is expressed as U.S. dollars per shekel. The shekel is fixed at 0.30 dollars per shekel. The country's international reserves are $600. Foreign financial investors hold checking accounts in the country in the amount of 5,000 shekels. a. Suppose that foreign financial investors do not fear a devaluation of the shekel, and thus do not convert their shekel checking accounts into dollars. ?? which means that the country can After one year, the value of the country's international reserves is fixed value of 0.30 U.S. dollars per shekel. b. Now suppose that foreign financial investors come to expect a possible devaluation of the shekel to 0.25 U.S. dollars. In regards to whether this possibility should worry them or not, which of the following statements is correct: maintain its O This possibility should worry them, as a…Angelika's company is based in Germany and sells its products all over the world. Currently, Angelika's company sells more products in Japan than ever before because the Yen has appreciated against the Euro, which means that Japanese consumers have more buying power. However, if the Yen depreciates against the Euro, their sales will drop unless they lower the prices on their products. *** Question | The situation Angelika's company faces illustrates which type of currency risk? A) translation exposure B) consolidation C) economic exposure D) transaction exposure E) hedgingAssume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting EUR/USD at 1.2459 and Credit Suisse is offering USD/CHF at 0.8850. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current EUR/CHF of 1.1048. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What is the EUR/CHF rate that eliminate triangular arbitrage? (X.XXXX)
- 1. Dynamic Exchange Rate Band: The MAS maintained a managed float policy, allowing the SGD to float within an undisclosed policy band. Within this band, the MAS intervened in the foreign exchange market, buying and selling SGD to stabilize its value against a basket of currencies. This approach provided flexibility to counteract excessive volatility. 2. Interest Rate Adjustments: The MAS used interest rate adjustments to influence the SGD's value in response to global economic conditions. Singapore could attract investments, support economic growth, and maintain exchange rate stability by aligning interest rates with economic fundamentals. 3. Diversification of Trade Partners: Singapore focused on diversifying its trade relationships to mitigate risks associated with reliance on specific trading partners. Strengthening ties with emerging markets and expanding trade agreements reduced Singapore's vulnerability to economic fluctuations in any region. 4. Strengthening Foreign Reserves:…35. Suppose that a U.S. company wishes to purchase goods from a German producer. The U.S. firm agrees to take the delivery of the goods in three months and to pay €1 million Euros at that time. This company wishes to avoid this exchange rate risk by buying Euros at the 3-month forward rate, f=0.95 (€/S). Then, how much this company would have to pay in US dollars in exchange for €l million Euros? a. $1 million dollars. b. $1,052,632 dollars. c. $950,000 dollars.“There has been a turnaround from the sizeable net outflows over the past two years when South African companies stepped up their efforts to internationalise their businesses. The shift in direct investment trends made a small contribution to improving the financial account of South Africa’s balance of payments, which showed a surplus of 3.5% for the third quarter, up from 1.3% the previous quarter. The Reserve Bank’s quarterly bulletin shows that capital inflows were more than adequate to finance the deficit on the current account deficit of the balance of payments, which widened to 4.1% from a revised 2.9% in the third quarter. Economists expect that the current account deficit, which tends to be a driver of the rand exchange rate, will narrow again in the fourth quarter as exports pick up again” (Joffe, 2016). In your opinion, can the government keep export demand stimulated such that the balance of payments remains dazzling