536-5a_HW[1]

# 536-5a_HW[1] - 536-5a_HW 11S Topic 5 Manage Operating...

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536-5a_HW, 11S FIN 536 – SU Page 1 of 2 Topic 5 Manage Operating Exposure Exam Sample Problem 1 FX PASS THROUGH: SHOW ALL YOUR WORK CLEARLY A US firm exports machine to UK. Currently the product is priced at \$100,000 in US. Current S = 1.5 \$/£. It is forecasted that \$ will appreciate against £ by 5% in the next few days. Assume π \$ = 0. 1. What is the current £ price of the product in UK? What is the new exchange rate? 2. Different PT strategies: a) Assume the firm decides not to change the £ price of the product. What are the new £ price and the \$ price of the product? What is the % Δ S? % Δ P? Degree of pass-through? Implication? b) Assuming 100% degree of pass-through, What are the new £ price and the \$ price of the product? What is the % Δ S? % Δ P? Implication? c) Assuming 60% degree of pass-through, what should be the export £ price of the product at the end of the year? What are the new £ price and the \$ price of the product? Exam Sample Problem 1 – Solution Current T = 1, A T = 1, B T = 1, C P \$ /unit \$100,000 a) \$95,240 b) \$100,000 c) \$98,097 S 1.5 \$/£ a) 1.4286 \$/£ b) 1.4286 \$/£c c) 1.4286 \$/£ P £ /unit

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## This note was uploaded on 11/07/2011 for the course FIN 536 taught by Professor Staff during the Spring '11 term at S.F. State.

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536-5a_HW[1] - 536-5a_HW 11S Topic 5 Manage Operating...

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