PARK&SHOP and WELLCOME are operating supermarkets in Hong Kong. They arecompeting with each other in terms of price and products.PARK&SHOP is considering the possible acquisition of WELLCOME. Both companies haveno debt. PARK&SHOP estimates that the acquisition will create synergy by increasing itstotal after-tax annual cash flows by $2.4 million forever.The current market value of WELLCOME is $58 million, and that of PARK&SHOP is $107million. The discount rate for the incremental cash flows is 10%. PARK&SHOP tries todetermine whether it should offer 40% of its stock or $73 million in cash to WELLCOME'sshareholders.Required:(a) What is the cost of each alternative?(b) Calculate the net present value of each alternative. Suggest whichalternative PARK&SHOP should choose.(c) Justify three rationales for a company to consider acquisition. It is an ongoing issue in exchange rate manipulation. The United States has been protestingfor many years that renminbi or yuan (CNY), the currency in China, is being undervalued.You would like to apply the concept of Purchasing Power Parity (PPP) to find out if suchaccusation is correct. Following are data you have collected from July 2016 Big Mac Index.LocationUnited StatesChinaHong KongBig Mac prices in local currency July 2016 USD exchange rateUSD4.5567CNY 16.00HKD17.006.13417.7567(a) Analyse whether the accusation by the United States regardingundervaluation of the renminbi at that time was valid. Find out thepercentage of undervalue/overvalue of the renminbi against the US dollarto support your view.(b) Some countries encourage manipulation in their exchange rate relative tothose of some other countries as a means of relieving foreign tradeimbalances. Evaluate each of the following scenarios regarding its impactthat would have on the Hong Kong importers and Hong Kong exportersdoing business with the foreign country:i The officials of Hong Kong Monetary Authority (HKMA) announcethat they are comfortable with the rising euro relative to the HongKong dollar.ii The Japanese government announces that it will print billions of newyen and inject them into the economy in an effort to boost the localeconomic activities.

Large companies with large cash amounts tend to acquire small and profitable companies to increase…

PARK&SHOP and WELLCOME are operating supermarkets in Hong Kong. They competing with each other in terms of price and products. PARK&SHOP is considering the possible acquisition of WELLCOME. Both companies h no debt. PARK&SHOP estimates that the acquisition will create synergy by increasing total after-tax annual cash flows by $2.4 million forever. The current market value of WELLCOME is $58 million, and that of PARK&SHOP is S nillion. The discount rate for the incremental cash flows is 10%. PARK&SHOP tries determine whether it should offer 40% of its stock or $73 million in cash to WELLCOM hareholders.

PARK&SHOP and WELLCOME are operating supermarkets in Hong Kong. They competing with each other in terms of price and products. PARK&SHOP is considering the possible acquisition of WELLCOME. Both companies h no debt. PARK&SHOP estimates that the acquisition will create synergy by increasing total after-tax annual cash flows by $2.4 million forever. The current market value of WELLCOME is $58 million, and that of PARK&SHOP is S nillion. The discount rate for the incremental cash flows is 10%. PARK&SHOP tries determine whether it should offer 40% of its stock or $73 million in cash to WELLCOM hareholders.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 3IEE

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Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).
1. Based on the following information, answer the problems showing procedure for each problem. CURRENCY SPOT & FORWARD RATES TABLE_1 U.S./Can. $1 U.S. $1 Cdn Cdn.$ U.S. $ in in Country per unit per unit Cdn.$= U.S.$= 1.5833 0.6316 SPOT 1 month forward 1.5847 2 months forward 1.5861 3months forward 1.5879 6months forward 1.5932 12months forward 1.6041 3years forward 1.6328 5years forward 1.6538| 7years forward 1.6738 10years forward 1.7133 Britain 1 m forward 2 m forward 3 m forward 6 m forward 12 m forward Europe 1 m forward 3 m forward 6 m forward 12 m forward Japan (pound) 2.4582 2.4559 2.454 2.4525 2.4474 2.4392 1.5504 1.5497 1.549 1.5489 1.5506 (Yen) 0.013034 0.008232 1 m forward 0.013066 0.008245 1.5526 1.5498 1.5472 1.5445 1.5362 1.5206 0.9792 0.9779 0.9755 0.9722 0.9666 0.631 0.6305 0.6298 0.6277 0.6234 0.6124 0.6047 0.5974 0.5837 (euro) Cdn.$ in 2001: High 1.5028 Low 1.6183 Average 1.5701 0.6654 0.6179 0.6369 3 m forward 0.013131 0.00827 6 m forward 0.013231 0.008305 12 m…
If China inflation suddenly becomes much higher than Philippines inflation, the Philippines demand for China goods will ____. In addition, the supply of China’s yuan to be sold for pesos will ____; both forces will place ____ pressure on the value of the yuan. A. increase; decline; upward B. increase; decline; downward C. decrease; increase; upward D. decrease; increase; downward
An investor is given the following quotes from a bank: Bid S$ / US$ S$ / € Offer 0.7430 (i.e. S$1 = 74 US cents approximately) 0.7410 0.5030 0.5050 (i.e. S$1 = 0.5 euro approximately) Suppose the investor has 1,000 Euros and wants to change them into US dollars. Analyse how the investor could determine the amount of US dollars the bank will give him. Answer to three (3) decimal places.
Suppose that Cloudastries Bank is a U.S.-based financial intermediary that serves the foreign exchange market. Assume that this bank is willing to both purchase and sell currency for the same rate. In other words, assume there is no bid/ask spread. Suppose Cloudastries has made the following direct quotations: Currency Dollar Spot Rate $0.55 $1.65 Mexican Peso Euro Additionally, Cloudastries has quoted a cross exchange rate of 1 euro = 3.01 pesos. After exchanging euros for pesos, the last step in triangular arbitrage is to exchange those pesos for dollars. If you exchange your 36,484.84 for dollars from Cloudastries, you would receive This represents a profit of
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The following graph depicts the foreign exchange market for the euro. The demand for euros is represented by the blue line, while the supply of euros is represented by the orange line. Suppose that the federal reserve of the United States wishes to lower the value of the euro relative to the dollar. Shift either the supply curve or the demand curve to reflect the monetary policy that the Fed is likely to enact if it uses direct intervention. VALUE OF EURO (Dollars per euro) QUANTITY OF EUROS S D D S
Suppose the following exchange rate quotations are available: Citibank quotes U.S. dollars per Euro: $1.2223/€Barclays Bank quotes U.S. dollars per pound sterling: $1.8410/£ Dresdner Bank quotes Euros per pound sterling: €1.5100/£ You are a market trader with $1,000,000. Will you be able to make an arbitrage profit using these quotes? If yes, why? What will be the profit? Show your calculations.
Suppose that Cloudastries Bank is a U.S.-based financial intermediary that serves the foreign exchange market. Assume that this bank is willing to both purchase and sell currency for the same rate. In other words, assume there is no bid/ask spread. Suppose Cloudastries has made the following direct quotations: Currency Mexican Peso Euro Dollar Spot Rate $0.40 $1.60 Additionally, Cloudastries has quoted a cross exchange rate of 1 euro = 4.01 pes After exchanging dollars for euros, the next step in triangular arbitrage is to excl If you use all 6,250.00 to purchase pesos from Cloudastries, you would receive 40,106.42 64,160.00 100,250.00 25,062.50 ros for pesos. pesos.
The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner costs £65.45 in England. The spot rate is currently $1.8967 per pound. ST 30378 8330378 Glelbicke Mars ONF LAR Assuming that PPP holds true, what is the price of the scanner in the United States? O $105.52 O $130.35 O $124.14 O $136.55 Suppose the price of the scanner in the United States was actually $136.55. Assuming no transaction costs, transportation costs, or import restrictions, what does PPP predict would happen to the demand for the scanner in the United States? O The demand for the scanner would increase in the United States. O The demand for the scanner would decrease in the United States.
Suppose that the spot exchange rates against the US dollar are: SEK9.3924 = USD1 CHF1.5231 = USD1 JPY123.380 = USD1 What rate do you think a Japanese bank would quote for exchanging Swiss francs into Swedish krone? Multiple Choice SEK6.167 = CHF1 SEK0.162 = CHF1 SEK13.136 = CHF1 SEK1 = CHF1