Blog

Why are debt contracts typically extremely complicated legal documents that place substantial restrictions on the behavior of the borrower?

Assume the following information:     Quoted Bid Price Quoted Ask Price Value of an Australian dollar (A$) in $ $0.67 $0.69 Value of Mexican peso in $ $.074 $.077 Value of an Australian dollar in        Mexican pesos     8.2     8.5   Assume you have $100,000 to conduct triangular arbitrage. What will be your profit from implementing this strategy?

Long-term forward contracts are a possible way to hedge the distant sale of fixed assets in foreign countries, but they may not be available for many emerging market currencies.

Most MNCs do not perceive their foreign exchange management as a profit center. Rather, their main responsibility is to assess potential exposure and determine how and if the exposure should be hedged.

Assume that Parker Company will receive SF200,000 in 360 days. Assume the following interest rates:    U.S. Switzerland 360-day borrowing rate 7% 5% 360-day deposit rate 6% 4% Assume the forward rate of the Swiss franc is $.50 and the spot rate of the Swiss franc is $.48. If Parker Company uses a money market hedge, it will receive ____ in 360 days. 

Assume the following information:   U.S. investors have $1,000,000 to invest: 1-year deposit rate offered on U.S. dollars = 12% 1-year deposit rate offered on Singapore dollars = 10% 1-year forward rate of Singapore dollars = $.412 Spot rate of Singapore dollar = $.400   Given this information:

A U.S. firm is bidding for a project needed by the Swiss government. The firm will not know if the bid is accepted until three months from now. The firm will need dollars to cover expenses but will be paid by the Swiss government in Swiss francs if it is hired for the project. The firm can best insulate itself against exchange rate exposure by:

If an MNC is extremely risk-averse, it may decide to hedge even though its hedging analysis indicates that remaining unhedged will probably be less costly than hedging.

Which of the following firms is not exposed to translation exposure? 

One financial intermediary in our financial structure that helps reduce moral hazard arising from the principal-agent problem is the ________________.