国际财务管理课后习题答案chapter 8.docx
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国际财务管理课后习题答案chapter8
CHAPTER8MANAGEMENTOFTRANSACTIONEXPOSURE
SUGGESTEDANSWERSANDSOLUTIONSTOEND—OF—CHAPTERQUESTIONSANDPROBLEMS
QUESTIONS
1.Howwouldyoudefinetransactionexposure?
Howisitdifferentfromeconomicexposure?
Answer:
Transactionexposureisthesensitivityofrealizeddomesticcurrencyvaluesofthefirm'scontractualcashflowsdenominatedinforeigncurrenciestounexpectedchangesinexchangerates.Unlikeeconomicexposure,transactionexposureiswell—definedandshort—term。
2.Discussandcomparehedgingtransactionexposureusingtheforwardcontractvs。
moneymarketinstruments。
Whendothealternativehedgingapproachesproducethesameresult?
Answer:
Hedgingtransactionexposurebyaforwardcontractisachievedbysellingorbuyingforeigncurrencyreceivablesorpayablesforward.Ontheotherhand,moneymarkethedgeisachievedbyborrowingorlendingthepresentvalueofforeigncurrencyreceivablesorpayables,therebycreatingoffsettingforeigncurrencypositions。
Iftheinterestrateparityisholding,thetwohedgingmethodsareequivalent。
3.Discussandcomparethecostsofhedgingviatheforwardcontractandtheoptionscontract。
Answer:
Thereisnoup-frontcostofhedgingbyforwardcontracts.Inthecaseofoptionshedging,however,hedgersshouldpaythepremiumsforthecontractsup—front。
Thecostofforwardhedging,however,mayberealizedexpostwhenthehedgerregretshis/herhedgingdecision。
4。
Whataretheadvantagesofacurrencyoptionscontractasahedgingtoolcomparedwiththeforwardcontract?
Answer:
Themainadvantageofusingoptionscontractsforhedgingisthatthehedgercandecidewhethertoexerciseoptionsuponobservingtherealizedfutureexchangerate.Optionsthusprovideahedgeagainstexpostregretthatforwardhedgermighthavetosuffer.Hedgerscanonlyeliminatethedownsideriskwhileretainingtheupsidepotential。
5.SupposeyourcompanyhaspurchasedaputoptionontheGermanmarktomanageexchangeexposureassociatedwithanaccountreceivabledenominatedinthatcurrency.Inthiscase,yourcompanycanbesaidtohavean‘insurance'policyonitsreceivable.Explaininwhatsensethisisso.
Answer:
Yourcompanyinthiscaseknowsinadvancethatitwillreceiveacertainminimumdollaramountnomatterwhatmighthappentothe$/€exchangerate。
Furthermore,iftheGermanmarkappreciates,yourcompanywillbenefitfromtherisingeuro.
6。
RecentsurveysofcorporateexchangeriskmanagementpracticesindicatethatmanyU.S.firmssimplydonothedge.Howwouldyouexplainthisresult?
Answer:
Therecanbemanypossiblereasonsforthis.First,manyfirmsmayfeelthattheyarenotreallyexposedtoexchangeriskduetoproductdiversification,diversifiedmarketsfortheirproducts,etc。
Second,firmsmaybeusingself—insuranceagainstexchangerisk。
Third,firmsmayfeelthatshareholderscandiversifyexchangeriskthemselves,renderingcorporateriskmanagementunnecessary。
7。
Shouldafirmhedge?
Whyorwhynot?
Answer:
Inaperfectcapitalmarket,firmsmaynotneedtohedgeexchangerisk。
Butfirmscanaddtotheirvaluebyhedgingifmarketsareimperfect.First,ifmanagementknowsaboutthefirm’sexposurebetterthanshareholders,thefirm,notitsshareholders,shouldhedge。
Second,firmsmaybeabletohedgeatalowercost.Third,ifdefaultcostsaresignificant,corporatehedgingcanbejustifiablebecauseitreducestheprobabilityofdefault.Fourth,ifthefirmfacesprogressivetaxes,itcanreducetaxobligationsbyhedgingwhichstabilizescorporateearnings。
8。
Usinganexample,discussthepossibleeffectofhedgingonafirm’staxobligations。
Answer:
Onecanuseanexamplesimilartotheonepresentedinthechapter。
9。
Explaincontingentexposureanddiscusstheadvantagesofusingcurrencyoptionstomanagethistypeofcurrencyexposure。
Answer:
Companiesmayencounterasituationwheretheymayormaynotfacecurrencyexposure.Inthissituation,companiesneedoptions,notobligations,tobuyorsellagivenamountofforeignexchangetheymayormaynotreceiveorhavetopay。
Ifcompanieseitherhedgeusingforwardcontractsordonothedgeatall,theymayfacedefinitecurrencyexposure.
10.Explaincross-hedginganddiscussthefactorsdeterminingitseffectiveness.
Answer:
Cross-hedginginvolveshedgingapositioninoneassetbytakingapositioninanotherasset.Theeffectivenessofcross-hedgingwoulddependonthestrengthandstabilityoftherelationshipbetweenthetwoassets。
PROBLEMS
1.CrayResearchsoldasupercomputertotheMaxPlanckInstituteinGermanyoncreditandinvoiced€10millionpayableinsixmonths。
Currently,thesix—monthforwardexchangerateis$1。
10/€andtheforeignexchangeadvisorforCrayResearchpredictsthatthespotrateislikelytobe$1.05/€insixmonths。
(a)Whatistheexpectedgain/lossfromtheforwardhedging?
(b)IfyouwerethefinancialmanagerofCrayResearch,wouldyourecommendhedgingthiseuroreceivable?
Whyorwhynot?
(c)Supposetheforeignexchangeadvisorpredictsthatthefuturespotratewillbethesameastheforwardexchangeratequotedtoday.Wouldyourecommendhedginginthiscase?
Whyorwhynot?
Solution:
(a)Expectedgain($)=10,000,000(1.10–1.05)
=10,000,000(.05)
=$500,000.
(b)IwouldrecommendhedgingbecauseCrayResearchcanincreasetheexpecteddollarreceiptby$500,000andalsoeliminatetheexchangerisk.
(c)SinceIeliminateriskwithoutsacrificingdollarreceipt,Istillwouldrecommendhedging.
2。
IBMpurchasedcomputerchipsfromNEC,aJapaneseelectronicsconcern,andwasbilled¥250millionpayableinthreemonths。
Currently,thespotexchangerateis¥105/$andthethree-monthforwardrateis¥100/$。
Thethree-monthmoneymarketinterestrateis8percentperannumintheU.S.and7percentperannuminJapan.ThemanagementofIBMdecidedtousethemoneymarkethedgetodealwiththisyenaccountpayable。
(a)Explaintheprocessofamoneymarkethedgeandcomputethedollarcostofmeetingtheyenobligation.
(b)Conductthecashflowanalysisofthemoneymarkethedge.
Solution:
(a)。
Let’sfirstcomputethePVof¥250million,i.e。
,
250m/1。
0175=¥245,700,245。
7
SoiftheaboveyenamountisinvestedtodayattheJapaneseinterestrateforthreemonths,thematurityvaluewillbeexactlyequalto¥25millionwhichistheamountofpayable.
Tobuytheaboveyenamounttoday,itwillcost:
$2,340,002。
34=¥250,000,000/105.
Thedollarcostofmeetingthisyenobligationis$2,340,002.34asoftoday.
(b)
___________________________________________________________________
TransactionCF0CF1
____________________________________________________________________
1。
Buyyensspot-$2,340,002。
34
withdollars¥245,700,245。
70
2。
InvestinJapan—¥245,700,245。
70¥250,000,000
3.Payyens—¥250,000,000
Netcashflow—$2,340,002.34
____________________________________________________________________
3。
YouplantovisitGeneva,Switzerlandinthreemonthstoattendaninternationalbusinessconference。
YouexpecttoincurthetotalcostofSF5,000forlodging,mealsandtransportationduringyourstay。
Asoftoday,thespotexchangerateis$0。
60/SFandthethree-monthforwardrateis$0.63/SF.Youcanbuythethree-monthcalloptiononSFwiththeexerciserateof$0.64/SFforthepremiumof$0.05perSF。
Assumethatyourexpectedfuturespotexchangerateisthesameastheforwardrate。
Thethree-monthinterestrateis6percentperannumintheUnitedStatesand4percentperannuminSwitzerland.
(a)CalculateyourexpecteddollarcostofbuyingSF5,000ifyouchoosetohedgeviacalloptiononSF。
(b)CalculatethefuturedollarcostofmeetingthisSFobligationifyoudecidetohedgeusingaforwardcontract.
(c)Atwhatfuturespotexchangeratewillyoubeindifferentbetweentheforwardandoptionmarkethedges?
(d)IllustratethefuturedollarcostsofmeetingtheSFpayableagainstthefuturespotexchangerateunderboththeoptionsandforwardmarkethedges。
Solution:
(a)Totaloptionpremium=(。
05)(5000)=$250.Inthreemonths,$250isworth$253.75=$250(1。
015)。
Attheexpectedfuturespotrateof$0.63/SF,whichislessthantheexerciseprice,youdon'texpecttoexerciseoptions.Rather,youexpecttobuySwissfrancat$0.63/SF。
SinceyouaregoingtobuySF5,000,youexpecttospend$3,150(=。
63x5,000).Thus,thetotalexpectedcostofbuyingSF5,000willbethesumof$3,150and$253。
75,i。
e.,$3,403.75。
(b)$3,150=(。
63)(5,000).
(c)$3,150=5,000x+253。
75,wherexrepresentsthebreak—evenfuturespotrate。
Solvingforx,weobtainx=$0。
57925/SF。
Notethatatthebreak-evenfuturespotrate,optionswillnotbeexercised。
(d)IftheSwissfrancappreciatesbeyond$0。
64/SF,whichistheexercisepriceofcalloption,youwillexercisetheoptionandbuySF5,000for$3,200.ThetotalcostofbuyingSF5,000willbe$3,453。
75=$3,200+$253.75。
$Cost
Optionshedge
Forwardhedge
$3,453.75
$3,150
0
0.579
0.64
(strikeprice)
$/SF
$253.75
Thisisthemaximumyouwillpay。
4。
BoeingjustsignedacontracttosellaBoeing737aircrafttoAirFrance.AirFrancewillbebilled€20millionwhichispayableinoneyear.Thecurrentspotexchangerateis$1.05/€andtheone-yearforwardrateis$1.10/€.Theannualinterestrateis6.0%intheU。
S.and5。
0%inFrance.Boeingisconcernedwiththevolatileexchangeratebetweenthedollarandtheeuroandwouldliketohedgeexchangeexposure。
(a)Itisconsideringtwohedgingalternatives:
selltheeuroproceedsfromthesaleforwardorborroweurosfromtheCreditLyonnaiseagainsttheeuroreceivable.Whichalternativewouldyourecommend?
Why?
(b)Otherthingsbeingequal,atwhatforwardexchanger
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