536-5a_HW[1]

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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 2

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online