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Question 1 You are responsible for managing a US toy manufacturer. Recently your market share has...

Question 1 You are responsible for managing a US toy manufacturer. Recently your market share has dropped dramatically due to strong pricing competition from a China toy manufacturer. What could the US toy manufacturer do to offset this? What kind of help could the US toy manufacturer seek?

Question 2 (4 points) The Canadian dollar per U.S. Dollar spot rate today, 3/1/2017 is 1.3500 / 1.3525 Canadian dollars per U.S. Dollar. The spot rate on 2/1/2017 was 1.3435 / 1.3450 Canadian dollars per U.S. dollar. (a) What has happened to the CAD in reference to the USD over the last month? (b) What does 1.3500 / 1.3525 mean? (c) If you sold $50,000,000 on 2/1/2017 how many CAD $ would you get? (d) If you turned around and sold that amount of CAD on 3/1/2017 for USD, how many USD would you get?

Question 3 (5 points) Company ABC imports product from China and is worried about the impact a potential upward revaluation of the Chinese yuan may have on its import costs. As a result ABC enters into a non deliverable forward contract with the following terms: Amount of contract 2,000,000 Chinese Yuan (CNY). Forward rate = 7.25 Chinese yuan per US dollar. Contract entered into on 1/1/2017. The contract will mature 6 months from 1/1/2017 (6/30/2017). Assume they are able to buy their Chinese yuan in the spot market at the rate of 8.000 chinese yuan per US dollar on 6/30/2017. How is this transaction settled, in detail(include calculation showing amount contract settles for, amount paid for buying Chinese yuan in spot market, and the overall settlement amount)? How is it different from a forward contract? Why is a NDF done instead of a forward contract?

Question 4 (4 points) The US decides to join other countries in a concerted effort to weaken the Japanese yen. The US does not want this action to cause the dollar to strengthen or weaken against other currencies. Explain in detail how this would be done.

Question 5 (4 points) For each of the following identify whether the currency has appreciated or depreciated against the U.S. Dollar over time period shown,

Question 6 (2 points) The current US dollar per euro spot rate is 1.31 and the current dollar per yen spot rate is .0132. a) Calculate the value of 1 yen in euros. b) If the yen depreciates against the euro would your answer be larger or smaller than your answer to part a.

Question 7 (3 points) A Swiss watchmaker imports watch components from Norway and exports watches to the United States. Suppose the dollar depreciates, and the Norweigan kroner appreciates relative to the Swiss franc. What impact would this have on the Swiss watchmaker? Explain in detail.

Question 8 (2 points) The current spot rate is 1.3317 Canadian dollars per US dollar. The one year forward rate is 1.3410 Canadian dollars per US dollar. The 1 year US interest rate is .56%. What is the 1 year Canadian dollar interest rate?

Question 9 (4 points) Explain the concept illustrated by the Big Mac index. What is the concept called? What are thw two forms of? What is the rationale of?

Question 10 (2 points) There are four currencies that are quoted on a direct basis all the time by foreign exchange traders. What are these four?

Homework Answers

Answer #1

1)

Competition from china has led to the fall in demand for local manufactured toys. Due to incredibly low cost, prices of Chinese toys are significantly low. Thus, local manufactures should be protected against the predatory competition. Following help can be sought from government to stave off competition:

  • Government can impose tariffs on imported toys.
  • Further, quota can be imposed for imported toys. It would very effective in reducing competition from Chinese toys industry.
  • Strong quality standards must be enforced upon to ensure that low quality products do not enter the domestic market.
  • Apart from this, government can provide subsidies to local manufacturers to face competition.
  • Relaxation in labor standard and change in immigration can reduce production cost significantly in toys industry.

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