Using the three elements in the MNC valuation formula plus the behavior of

Using the three elements in the mnc valuation formula

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Exchange? Using the three elements in the MNC valuation formula, plus the behavior of consumers, and the behavior of investors to explain your answer. 6 Marks v. Which exchange rate should Dollar General be most concerned about? Pick just one! State reasons why? 3 Marks 35 Marks Page 1 of 4
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International Finance: SIB675NWW Assignment No. 1 - Due – Tuesday, June 30, 2020 – 90 Marks 2. MNC Cash Flows and Exchange Rate Risk. Asheville Co. is Canadian and has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in the facility. Ashville Co. All operations are presently funded by Asheville’s parent in Canada. All the software is sold to U.S. firms by Asheville’s parent and invoiced in Canadian dollars. a) If the Mexican peso and the U.S. dollar both appreciate against the Canadian dollar, does this have a favorable effect, unfavorable effect, or no effect on Asheville’s value? Explain. 4 Marks b) If Ashville needs to borrow peso from one month to another to meet payroll expenses until it converts some Canadian dollars to pesos, which international financial market is it likely to use? 2 Marks c) In future, Asheville Co. plans to borrow funds which it will repay over 25 years, to build its own offices in Mexico to support its expansion of sales in the U.S., which international financial market is it likely to use? 2 Marks d) If the Mexican interest rates are presently lower than U.S. interest rates, and Asheville obtain loans denominated in Mexican pesos in order to support its expansion in the U.S. Will the borrowing of pesos increase , decrease , or have no effect on Ashville Co.’s exposure to the risk that the exchange rate will change? Briefly explain. 4 Marks 12 Marks 3. Exposure of MNCs to Exchange Rate Movements. Arlington Co. expects to receive 10 million euros in each of the next 10 years. It will need to obtain 2 million Mexican pesos in each of the next 10 years. The euro exchange rate is presently valued at $1.08 and is expected
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