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During a home currency appreciation, exporters may pull out of markets that foreign competition makes ________.

Unprofitable Economic exposure is based on the extent to which the ______ of the firm will change when exchange rates change. Value

With respect to home currency (HC) appreciation, the key issue for a domestic firm is its degree of ____. Pricing flexibility In the face of exchange rate volatility, developing a pricing strategy must address two key issues: 1) Market share 2) Profit margin The _______ the price elasticity of demand, the _____ the incentive to hold down price and thereby expand sales. Greater, greater During periods of exchange rate volatility, firms dealing in _______ products face more exchange rate risk that the firms selling _________ products. undifferentiated, differentiated U.S. exporter to appreciation of the dollar would be to a. raise the foreign currency price if the dollar appreciation was expected to be temporary and the cost of regaining market share was minimal b. move some production offshore if the appreciation were expected to persist for an extended period c. keep the foreign currency price constant if demand is quite elastic A U.S. exporter that anticipates an appreciation of the dollar should scout out possible foreign production sites Jet engine manufacturing entails enormous economies of scale. Pratt & Whitney, a large U.S. jet engine producer, faces substantial competition from Rolls Royce, the British engine manufacturer. What would be the best way for P & W to cope with a dollar that has recently appreciated by 50%? accelerate R&D spending and cost cutting efforts Suppose Apple is selling Macintosh computers in Germany in 1990 for DM 5,500 when the exchange rate was DM 1 = $0.68. If the DM rises to $0.71, what price must Apple charge to maintain its dollar unit revenue? DM 5,268

Suppose the initial price of a French bond is FF 850, the coupon income is FF 70, the end of period bond price is FF 1,000, and the franc devalues by 6% against the dollar during the period. What was the bond's total dollar return during the period? 18.33% Suppose an investor buys a Taiwanese bond with a face value of NT20,000, which is priced at NT$19,500 and bears a coupon of NT$1,700. At the end of the year, the investor sells the bond at a price of NT$18,030. During the year, the exchange rate goes from NT$1 = U.S.$0.0375 to NT$1 = U.S.$0.0425. What was the investor's U.S. dollar return on this bond? 14.67% A Thai baht bond with a coupon of 9.5% is initially priced at its face value of Bt 1,000. At the end of one year, the bond is selling for Bt 1,050. If the initial spot rate was Bt 25 = $1, at what end of year exchange rate will the dollar return on the bond just equal 10%? Bt 1 = $0.0384 A Canadian bond is initially priced at its face value of C$1,000. At the end of the year, the bond is selling for C$1,100. If the Canadian dollar appreciates by 10%, with a 5.5% coupon, what will the U.S. dollar return on the bond equal at the end of the year? 27.1% A Hong Kong bond with a coupon of 10% is initially priced at HK$1,000. At the end of the year, the bond is selling for HK$1,200. If the Hong Kong dollar depreciates by 5%, what will the U.S. dollar return on the bond equal at the end of the year? 23.5% Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price of 1,100. The bond's face value is 1,000. At the end of the year, the bond is selling at 1,050 and the has depreciated by 10%. What is the dollar return on the bond at the end of the year? -5.91% A Euro bond with a coupon rate of 10% is initially priced at its face value of 1000. At the end of the year, the bond is selling at 1,070. If the appreciates by 12% during the year, what is the end of year dollar return on the bond? 31.04%

A Brazilian bond with a coupon rate of 20% is initially priced at its face value of R$1,000. At the end of the year, the bond is selling at R$1,050. If the real depreciates by 75%, what is the dollar return at the end of the year? -68.75% A Brazilian bond with a coupon rate of 15% at is initially priced at its face value of R$1,000. At the end of the year, the bond is selling at R$950. During the year, the exchange rate goes from R$1 = U.S.$0.75 to R$1 = U.S.$0.85. What is the bond's total dollar return during the period? 22.67% Suppose an investor buys a share of Sony at a price of 38,720 at the start of the year. During the year, the investor receives a dividend of 500. At the end of the year, the price of Sony is 49,560. During the year, the exchange rate goes from 150 = $1 to 175 = $1. What was the investor's dollar return on Sony? 10.82% Suppose you buy a share of Siemens at a price of DM 83. During the year, you receive a dividend of DM 2 and the DM rises by 8%. If the stock price at yearend is DM 80, what was your total dollar return for the year? 6.70% Suppose an investor buys a share of British Petroleum at a price of 32 at the start of the year. During the year, the investor receives a dividend of 1.5. At the end of the year, the price of BP is 34. During the year, the exchange rate goes from 1 = $1.78 to 1 = $1.63. What was the investor's dollar return on BP? 1.59% Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non U.S. market portfolios is .47. Suppose you invest 40% of your money in the U.S. stock market and the other 60% in the non U.S. portfolio. What is the standard deviation of your portfolio? 15.1% Suppose an investor buys a UK bond with a coupon rate of 8% at its price of 990. The bond's face value is 1,000. If the British pound depreciates by 5%, at what end of year selling price of this bond will the dollar return on the bond just equal 10%?

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Suppose McDonald's charges Ptas. 25 for a burger in Madrid. Its costs are Ptas. 18 per burger and these costs are not expected to change with the exchange rate. If the peseta devalues from $0.107 to $0.096, what price will McDonald's have to charge for its burgers to maintain its dollar profit margin? Ptas. 25.80 In the face of an appreciating yen, Toyota should consider a. investing in U.S. production facilities b. raising its research and development investment

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