Beruflich Dokumente
Kultur Dokumente
Country
Australia
Brazil
Canada
China
France
Germany
Hong Kong
India
Indonesia
Japan
Malaysia
Mexico
New Zealand
Phillipines
Russia
Singapore
South Africa
United Kingdom
United States
United States
City
Sydney
Rio de Janeiro
Ottawa
Shanghai
Paris
Berlin
Hong Kong
Mumbai
Jakarta
Tokyo
Kuala Lumpur
Mexico City
Auckland
Manila
Moscow
Singapore
Cape Town
London
New York City
San Francisco
Cheap Date in
Local Currency
AUD 111.96
BRL 135.43
CAD 78.33
CNY 373.87
EUR 75.57
EUR 76.49
HKD 467.03
INR 1,379.64
IDR 314,700
JPY 10,269.07
MYR 117.85
MXN 423.93
NZD 111.52
PHP 1,182.88
RUB 2,451.24
SGD 77.89
ZAR 388.58
GBP 73.29
USD 93.20
USD 88.72
Exchange
Rate Quote
USD = 1 AUD
USD = 1 BRL
USD = 1 CAD
USD = 1 CNY
USD = 1 EUR
USD = 1 EUR
USD = 1 HKD
USD = 1 INR
USD = 1 IDR
USD = 1 JPY
USD = 1 MYR
USD = 1 MXN
USD = 1 NZD
USD = 1 PHP
USD = 1 RUB
USD = 1 SGD
USD = 1 ZAR
USD = 1 GBP
1 USD
1 USD
Exchange Rate
7 April 2014
0.9290
0.4363
0.9106
0.1619
1.3702
1.3702
0.1289
0.0167
0.0001
0.0097
0.3048
0.0769
0.8595
0.0222
0.0283
0.7939
0.0946
1.6566
1.0000
1.0000
Cheap Date in
In USD
104.01
59.09
71.33
60.53
103.55
104.81
60.20
23.04
31.47
99.61
35.92
32.60
95.85
26.26
69.37
61.84
36.76
121.41
93.20
88.72
Relative
to NYC
112%
63%
77%
65%
111%
112%
65%
25%
34%
107%
39%
35%
103%
28%
74%
66%
39%
130%
100%
95%
Source: Data drawn from The Random Walk, Mapping the World's Prices 2014, Deutsche Bank Research, 09 May 2014, Figures 30 and 32, with
author calculations. 'Relative to NYC' is calculated as = Cheap Date in USD/93.20.
Note: The cheap date combines the local currency cost of a cab ride for two, two McDonald's hamburgers, two soft drinks, two movie tickets, and
two beers. In 2013 Deutsche Bank had included sending a bouquet of roses in the date, but did not include that in the 2014 index, making the two
years not directly comparable.
a. The truly cheapest cheap date could be had in Mumbai, India, at only 25% of what it costs in New York City.
b. The most expensive-cheap date would be London at 130% of the cost of New York City.
c. If the Russian ruble was actually trading at 0.042 instead of 0.0283, Moscow would be 110% of the cost of a cheap date in New York City.
d. If the exchange rate in Shangahi was CNY 6.66 = 1 USD, a cheap date would cost USD 56.14, only 60% of the cost in New York City.
Net Income
2013
2014
Japanese
Subsidiary
JPY 1,500
JPY 1,460
Britih
Subsidiary
GBP 100.00
GBP 106.40
European
Subsidiary
EUR 204.00
EUR 208.00
Chinese
Subsidiary
CNY 168.00
CNY 194.00
Russian
Subsidiary
RUB 124.00
RUB 116.00
United States
Subsidiary
USD 360.00
USD 382.00
The average exchange rate for each year, by currency pairs, was the following. Use this data to answer the following questions.
Exchange Rate
2013
2014
JPY = 1 USD
97.57
105.88
USD = 1 GBP
1.5646
1.6473
USD = 1 EUR
1.3286
1.3288
CNY = 1 USD
6.1484
6.1612
RUB = 1 USD
31.86
38.62
USD
1.0000
1.0000
a. What was Blundell Biotech's consolidated profits in U.S. dollars in 2013 and 2014?
b. If the same exchange rates were used for both years, what was the change in corporate earnings on a "constant currency" basis?
c. Using the results of the 'constant currency analysis in part b, is it possible to separate Blundell's growth in earnings between
local currency earnings and foreign exchange rate impacts on a consolidated basis?
a. Consolidated profits or earnings is found by consolidating the converted profits in each foreign currency to U.S. dollars for that period. (This
is simplified. Actual accounting practices would require the additional netting of any intra-company transactions resulting to eliminate any
double-counting of profits.)
Japanese
Subsidiary
USD 15.37
USD 13.79
Britih
Subsidiary
USD 156.46
USD 175.27
European
Subsidiary
USD 271.03
USD 276.39
Chinese
Subsidiary
USD 27.32
USD 31.49
Russian
Subsidiary
USD 3.89
USD 3.00
United States
Subsidiary
USD 360.00
USD 382.00
Consolidated
Earnings
USD 834.08
USD 881.94
5.74%
b. If the exchange rates for 2013 are used for both years, earnings from individual subsidiaries and consolidation appear as follows.
Japanese
Subsidiary
USD 15.37
USD 14.96
(USD 0.41)
-2.7%
Britih
Subsidiary
USD 156.46
USD 166.47
USD 10.01
6.4%
European
Subsidiary
USD 271.03
USD 276.35
USD 5.31
2.0%
Chinese
Subsidiary
USD 27.32
USD 31.55
USD 4.23
15.5%
Russian
Subsidiary
USD 3.89
USD 3.64
(USD 0.25)
-6.5%
United States
Subsidiary
USD 360.00
USD 382.00
USD 22.00
6.1%
Consolidated
Earnings
USD 834.08
USD 874.98
USD 40.90
4.90%
On a constant currency basis, all subsidiaries showed growth in profits except for the Japanese and Russian subsidiaries. Fortunately for
Blundell, neither of those subsidiaries is a major contributor to total profits.
c. Blundell Biotech's consolidated earnings grew 5.7%. Since 4.9% of that was on an actual results basis (using constant currency assumption),
the exchange rate-based change in earnings can be solved for:
Total percent change = (1 + Actual percent change) x (1 + Foreign exchange percent change) -1
When rearranged to solve for the FX percent change:
FX percent change = (1.0574)/(1.0490) - 1
0.80%
Comparative Advantage
Problems 1-5 illustrate an example of trade induced by comparative advantage. They assume that China and France
each have 1,000 production units. With one unit of production (a mix of land, labor, capital, and technology), China
can produce either 10 containers of toys or 7 cases of wine. France can produce either 2 cases of toys or 7 cases of
wine. Thus, a production unit in China is five times as efficient compared to France when producing toys, but
equally efficient when producing wine. Assume at first that no trade takes place. China allocates 800 production
units to building toys and 200 production units to producing wine. France allocates 200 production units to building
toys and 800 production units to producing wine.
Wine
(cases/unit)
7
7
Toys
Wine
CHINA
Allocated production units to
Produces and consumes (output per unit x units allocated)
800
8,000
200
1,400
FRANCE
Allocated production units to
Produces and consumes (output per unit x units allocated)
200
400
800
5,600
8,400
7,000
Assumptions
China -- output per unit of production input
France -- output per unit of production input
China -- total production inputs
France -- total production inputs
Assumptions
China -- output per unit of production input
France -- output per unit of production input
China -- total production inputs
France -- total production inputs
Toys
(containers/unit)
10
2
1,000
1,000
Wine
(cases/unit)
7
7
Toys
Wine
1,000
10,000
10,000
1,000
7,000
7,000
The combined production of both countries is 10,000 containers of toys, 1,600 more containers of toys than before
specialization, with wine production remaining unchanged.
Assumptions
China -- output per unit of production input
France -- output per unit of production input
China -- total production inputs
France -- total production inputs
Toys
(containers/unit)
10
2
1,000
1,000
Wine
(cases/unit)
7
7
Toy
Production
TOYS
Exports (-)/
Imports (+)
Domestic
Consumption
1,000
10,000
(2,000)
8,000
2,000
2,000
1,000
7,000
10,000
7,000
10,000
Wine
Production
WINE
Exports (-)/
Imports (+)
Domestic
Consumption
1,400
1,400
(1,400)
5,600
7,000
Assumptions
China -- output per unit of production input
France -- output per unit of production input
China -- total production inputs
France -- total production inputs
Toys
(containers/unit)
10
2
1,000
1,000
Wine
(cases/unit)
7
7
Toy
Production
TOYS
Exports (-)/
Imports (+)
Domestic
Consumption
1,000
10,000
(400)
9,600
400
400
1,000
7,000
10,000
7,000
10,000
Wine
Production
WINE
Exports (-)/
Imports (+)
Domestic
Consumption
1,400
1,400
(1,400)
5,600
7,000
Toy production and consumption in China increases from 8,000 containers of toys before trade to 9,600 containers -- 1,600 more containers -- after trade. Wine production and consumption remains
the same as before trade. Thus the full benefit of trade goes to China when trading at France's domestic prices.
Assumptions
China -- output per unit of production input
France -- output per unit of production input
China -- total production inputs
France -- total production inputs
Toys
(containers/unit)
10
2
1,000
1,000
Wine
(cases/unit)
7
7
Toy
Production
TOYS
Exports (-)/
Imports (+)
Domestic
Consumption
1,000
10,000
(1,200)
8,800
1,200
1,200
1,000
7,000
10,000
7,000
10,000
Wine
Production
China gains 800 more containers of toys (8,800 post-trade compared to 8,000 pre-trade), and enjoys the same level of wine consumption (1,400).
France gains 800 more containers of toys (1,200 post-trade compared to 400 pre-trade), and enjoys the same level of wine consumption (5,600).
Wine production therefore remains the same as before trade, but now the 1,600 increased production of toys is split evenly between the two countries.
WINE
Exports (-)/
Imports (+)
Domestic
Consumption
1,400
1,400
(1,400)
5,600
7,000
Year
2007
2008
2009
2010
2011
2012
2013
2014
Cumulative
Cost
(Rmb)
16,000
15,400
14,800
14,700
14,200
14,400
14,600
14,800
Margin
(Rmb)
2,000
2,600
3,200
3,300
3,800
3,600
3,400
3,200
Price
(Rmb)
18,000
18,000
18,000
18,000
18,000
18,000
18,000
18,000
Price
(US$)
2,365
2,590
2,635
2,659
2,786
2,853
2,927
2,922
Percent Chg
in US$ Price
--9.50%
1.76%
0.89%
4.80%
2.38%
2.60%
-0.16%
23.54%
Price
(US$)
2,365
Percent Chg
in US$ Price
---
Year
2007
2008
2009
2010
2011
2012
2013
2014
Cumulative
Cost
(Rmb)
16,000
15,400
14,800
14,700
14,200
14,400
14,600
14,800
Margin
(Rmb)
2,000
Price
(Rmb)
18,000
Year
2011
2012
2013
2014
Percent
Change
2.7%
0.4%
1.8%
Percent
Change
6.7%
-4.2%
7.4%
Based on Vitro's U.S. sales, in both U.S. dollars and Mexican pesos, you should recommend that Santiago continue to
argue for his performance bonus to be based on the U.S. dollar value, not the translated Mexican peso value.
First, under the previous Managing Director, U.S. sales measured both ways was volatile. The volatility, however,
was larger in pesos than dollars. If that was the only concern, then it would only be up to Santiago to choose his 'risk
tolerance' -- how much volatility he is willing to bear in his annual performance bonus.
But more importantly, if his performance was based on the USD value of U.S. sales, he would be measured on the
actual sales which he had direct control over. Santiago does not, and willl not, control the exchange rate between the
dollar and the peso. And changes in that exchange rate could potentially destroy all growth in U.S. sales (and his
bonus) as it did in 2013. In 2013 U.S. sales grew (not much, but they grew), and he would have theoretically recieved
a bonus. But as measured in Mexican pesos in 2013, as a result of a fall in the value of the peso, his performance
would have not been positive -- and probably so would be the value of his bonus.
U.S. Parent
Company
(US$)
$4,500
35%
------
Brazilian
Subsidiary
(reais, R$)
R$6,250
25%
R$1.80/$
German
Subsidiary
(euros, )
4,500
40%
0.7018/$
Chinese
Subsidiary
(yuan, Y)
Y2,500
30%
Y7.750/$
4,500.00
(1,575.00)
2,925.00
35%
-----$ 2,925.00
$ 9,602.22
650.00
Brazilian
Subsidiary
(reais, R$)
25%
6,250.00
(1,562.50)
4,687.50
German
Subsidiary
(euros, )
40%
4,500.00
(1,800.00)
2,700.00
1.8000
$ 2,604.17
0.7018
$ 3,847.25
27.1%
40.1%
Chinese
Subsidiary
(yuan, Y)
2,500.00
(750.00)
1,750.00
30%
7.7500
225.81
14.77
30.5%
69.5%
2.4%
4,500.00
(1,575.00)
2,925.00
35%
Brazilian
Subsidiary
(reais, R$)
-----2,925.00
9,602.22
650.00
14.77
6,250.00
(1,562.50)
4,687.50
25%
German
Subsidiary
(euros, )
4,500.00
(1,800.00)
2,700.00
40%
1.8000
2,604.17
Chinese
Subsidiary
(yuan, Y)
2,500.00
(750.00)
1,750.00
30%
0.7018
3,847.25
7.7500
225.81
4,500.00
(1,575.00)
2,925.00
35%
-----2,925.00
8,560.56
650.00
13.17
-10.8%
Brazilian
Subsidiary
(reais, R$)
6,250.00
(1,562.50)
4,687.50
25%
3.0000
1,562.50
German
Subsidiary
(euros, )
4,500.00
(1,800.00)
2,700.00
40%
0.7018
3,847.25
Chinese
Subsidiary
(yuan, Y)
2,500.00
(750.00)
1,750.00
30%
7.7500
225.81
35%
U.S. Parent
Company
(US$)
Brazilian
Subsidiary
(reais, R$)
German
Subsidiary
(euros, )
Chinese
Subsidiary
(yuan, Y)
4,500.00
(1,575.00)
2,925.00
6,250.00
(1,562.50)
4,687.50
4,500.00
(1,800.00)
2,700.00
2,500.00
(750.00)
1,750.00
25%
-----2,925.00
9,602.22
650.00
14.77
40%
1.8000
2,604.17
30%
0.7018
3,847.25
7.7500
225.81
Brazilian reais falls in value against the U.S. dollar and Americo's Brazilian sales decline
U.S. Parent
Company
(US$)
4,500.00
(1,575.00)
2,925.00
35%
-----2,925.00
8,448.06
650.00
13.00
-12.0%
Brazilian
Subsidiary
(reais, R$)
5,800.00
(1,450.00)
4,350.00
25%
3.0000
1,450.00
German
Subsidiary
(euros, )
4,500.00
(1,800.00)
2,700.00
40%
0.7018
3,847.25
Chinese
Subsidiary
(yuan, Y)
2,500.00
(750.00)
1,750.00
30%
7.7500
225.81
1.8000
20%
1.5000
0.7018
20%
0.5848
7.7500
20%
6.4583
U.S. Parent
Company
(US$)
Brazilian
Subsidiary
(reais, R$)
German
Subsidiary
(euros, )
Chinese
Subsidiary
(yuan, Y)
4,500.00
(1,575.00)
2,925.00
35%
-----
-----2,925.00
10,937.67
650.00
14.77
16.83
4,500.00
(1,800.00)
2,700.00
40%
1.5000
3,125.00
2,500.00
(750.00)
1,750.00
30%
0.5848
4,616.70
6.4583
270.97
13.9%
-----
1.8000
-20%
2.2500
0.7018
-20%
0.8773
7.7500
-20%
9.6875
U.S. Parent
Company
(US$)
Brazilian
Subsidiary
(reais, R$)
German
Subsidiary
(euros, )
Chinese
Subsidiary
(yuan, Y)
4,500.00
(1,575.00)
2,925.00
35%
6,250.00
(1,562.50)
4,687.50
25%
-----2,925.00
8,266.78
650.00
14.77
12.72
6,250.00
(1,562.50)
4,687.50
25%
2.2500
2,083.33
4,500.00
(1,800.00)
2,700.00
40%
0.8773
3,077.80
-13.9%
2,500.00
(750.00)
1,750.00
30%
9.6875
180.65
4,500.00
(1,575.00)
2,925.00
35%
Brazilian
Subsidiary
(reais, R$)
-----2,925.00
9,602.22
650.00
14.77
1,575.00
5,104.66
6,250.00
(1,562.50)
4,687.50
25%
German
Subsidiary
(euros, )
4,500.00
(1,800.00)
2,700.00
40%
Chinese
Subsidiary
(yuan, Y)
2,500.00
(750.00)
1,750.00
30%
1.8000
2,604.17
0.7018
3,847.25
7.7500
225.81
868.06
2,564.83
96.77
3,472.22
6,412.08
322.58
4,500.00
Consolidated EBT
Total tax bill
Effective tax rate
$
$
14,706.89
5,104.66
34.7%
c. What would be the impact on Americo's EPS and global effective tax rate if Germany instituted a tax cut to 28% and German subsidiary earnings
rose to 5 million euros?
U.S. Parent
Brazilian
German
Chinese
Company
Subsidiary
Subsidiary
Subsidiary
Business Performance (000s)
(US$)
(reais, R$)
(euros, )
(yuan, Y)
Earnings before taxes, EBT (local currency)
Less corporate income taxes
Net profits of individual subsidiary
Avg exchange rate for the period (fc/$)
Net profits of individual subsidiary (US$)
4,500.00
(1,575.00)
2,925.00
35%
-----2,925.00
6,250.00
(1,562.50)
4,687.50
25%
5,000.00
(1,400.00)
3,600.00
28%
2,500.00
(750.00)
1,750.00
30%
1.8000
2,604.17
0.7018
5,129.67
7.7500
225.81
10,884.64
650.00
16.75
4,500.00
3,472.22
7,124.54
322.58
1,575.00
868.06
1,994.87
96.77
$
$
15,419.34
4,534.70
29.4%