FINS5516 International Corporate Finance Term 2, 2023
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FINS5516 International Corporate Finance
Term 2, 2023
Week 1 Homework Questions
Chapters 1, 2, 3: MNCs, International Monetary Systems, and Exchange Rate Determination
Chapter 2, Question 3
1. For each of thefollowing six scenarios, say whether the value of the dollar will appreciate, depreciate, or remain the same relative to the Japanese yen. Explain each answer. Assume that exchange rates arefree to vary and that otherfactors are held constant.
a. The growth rate of national income is higher in the United States than in Japan.
b. Inflation is higher in the U.S. than in Japan.
c. Prices in Japan and the United States are rising at the same rate.
d. Real interest rates are higher in the United States than in Japan.
e. The United States imposes new restrictions on the ability offoreigners to buy American companies and real estate.
f. U.S. wages rise relative to Japanese wages, and American productivityfalls behind Japanese productivity.
Chapter 2, Problem 3
1. On February 1, the euro is worth $0.8984. By May 1, it has moved to $0.9457.
a. By how much has the euro appreciated or depreciated against the dollar over this 3-month period?
b. By how much has the dollar appreciated or depreciated against the euro over this period?
Chapter 2, Problem 5
2. On Friday, September 13, 1992, the lira was worth DM 0.0013065. Over the weekend, the lira devalued against the DM to DM 0.0012613.
a. By how much has the lira devalued against the DM?
b. By how much has the DM appreciated against the lira?
c. Suppose Italy borrowed DM 4 billion, which it sold to prop up the lira. What were the Bank of Italy's lira losses on this currency intervention?
d. Suppose Germany spent DM 24 billion in an attempt to defend the lira. What were the Bundesbank's DM losses on this currency intervention?
Chapter 3
Chapter 3, Question 1
1. a. What are thefive basic mechanismsfor establishing exchange rates?
b. How does each work?
c. What costs and benefits are associated with each mechanism?
Chapter 3, Problem 2
1. Suppose the central rates within the ERMfor the Frenchfranc and DM are FF 6.90403:ECU
1 and DM 2.05853:ECU 1, respectively.
a. What is the cross-exchange rate between thefranc and the mark?
b. Under the original 2.25% margin on either side of the central rate, what were the approximate upper and lower intervention limitsfor France and Germany?
c. Under the revised 15% margin on either side of the central rate, what are the current approximate upper and lower intervention limitsfor France and Germany?
INSTRUCTIONS:
• Both handwritten and typed answers are accepted.
• You are only allowed to upload 1file to the Turnitin.
• To getfull credit, you need to complete all questions above. (Show all workings)
• Week 1 homework submission is due no later than 07 June 2023 5:00 PM.
• Late submissions will not be accepted.
2023-06-01