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MKTG (with Marketing CourseMate with eBook Printed Access Card)

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CHAPTER 18 INTERNATIONAL ASPECTS OF FINANCIAL MANAGEMENT Answers to Concepts Review and Critical Thinking Questions1. a. The dollar is selling at a premium, because it is more expensive in the forward market than in thespot market (SF 1.53 versus SF 1.50). b. The franc is expected to depreciate relative to the dollar, because it will take more francs to buyone dollar in the future than it does today. c. Inflation in Switzerland is higher than in the United States, as are interest rates. 2. The exchange rate will increase, as it will take progressively more rubles to purchase a dollar as thehigher inflation in Russia will devalue the ruble. This is the relative PPP relationship. 3. a. The Australian dollar is expected to weaken relative to the dollar, because it will take more A$ inthe future to buy one dollar than it does today. b. The inflation rate in Australia should be higher. c. Nominal interest rates in Australia should be higher; relative real rates in the two countries shouldbe the same.
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Unformatted text preview: 4. A Yankee bond is most accurately described by d. 5. Either. For example, if a country’s currency strengthens, imports become cheaper (good), but itsexports become more expensive for others to buy (bad). The reverse is true for a currency depreciation. 6. The main advantage is the avoidance of the tariff. There are probably other advantages, but we don’tknow about them. Disadvantages include political risk, the different exchange rate risk as Hynix nowhas to be concerned with the Taiwanese exchange rate as well, and costs of supervising distantoperations, although ProMOS will provide much of the supervision. 7. One key thing to remember is that dividend payments are made in the home currency. More generally,it may be that the owners of the multinational are primarily domestic who are ultimately concernedabout their wealth denominated in their home currency because, unlike a multinational, they are notinternationally diversified...
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