International Finances Questions - Math Problem Example

International Financial Management Student`s Name Professor Institution Date of Submission Question 1 Purchase price from Europe €375,000 Import duty in Jordan is 12% of all imports from Europe Re export from Jordan to Saudi Arabia fee of 22% Therefore for the Jordanian exporter will incur a cost of 12% on his purchases to bring his cost of purchase to €375,000 × 1.12 = €420,000 In the Jordanian Dinar 1€ = JD0.87 Therefore €420,000= 420,000 × 0.87 = JD 365,400 For resale, the Jordan exporter will impose a 22% rate to Saudi Arabian importer Therefore the export price in Jordanian Dinar is JD 365,400 × 1.22 = JD 445,788 The common currency for the Jordanian exporter and the Saudi Arabian importer is the U.S. dollar. Therefore, converting the JD export price to U.S. dollar, we obtain 1$ = JD0.7080 ? = JD 445,788 = 445,788/0.7080 = $ 629,644 The Saudi Arabian importer will incur the following cost 1$ = SRI 3.750 $ 629,644 =? = 629,644 × 3.750 = SRI 2,361,165 Question 2 4 b/room 2400square feet = $240,000 Down payment = 20% 15 year fixed mortgage = 6.4% 30 year fixed rate = 6.875 a) What is the monthly payment, assuming a fully amortizing loan of equal payments for the life of the mortgage? If he makes a down payment of 20%, then the loan value will change to: (1-20%) × $240,000 = 80% × $240,000 = $ 192,000 Therefore PMT= Amount/ PVIFA Effective rate (k) = 6.4%/12 k = 0.53% n = 15×12 = 180 PVIFA (k, n) = [1 – (1 + k)-n] / k PVIFA (k, n) = [1 – (1 + .0053)-180] / 0.0053 = 115.817 PMT= Amount/ PVIFA = $192,000/115.817 = $1,658 b) Assume that instead of making a 20% down payment, he makes a 10% down payment, and finances the remainder at 7.125% fixed interest for 15 years. What is his monthly payment? (1-10%) × $240,000 = 90% × $240,000 = $ 216,000 Loan = $216,000 k = .07125/12 = 0.00594 n = 15×12 = 180 FVIFA = 1- (1 + k)-n = 1- (1+0.00594)-180 = 0.6556 Monthly payment = $216,000× (0.00594/ 0.6556) = $216,000 ×0.00906 = $1,957 Therefore he would have to pay monthly $1,957 Assume that the home's total value falls by 25%. If the homeowner was able to now sell the house, but at the new home value, what would be his gain or loss on the home and mortgage assuming all of the mortgage principal remains? Use the same assumptions as under part a. Current home value = .75 x $240,000 = $180,000 The mortgage principal is $ 192,000 Therefore $180,000-$ 192,000 = ($12,000) This show a loss of $12,000 will be if the home was to be sold now. Question 3 Export price = ¥2,800,000 Exchange Rate = 1$=¥110.20 U.S.Inflation rate = 2.0%p.a Japan’s inflation rate = 0.0% a) What is the export price for the XTerra at the beginning of the year expressed in U.S. Dollars? If ¥110.20 = 1$ Then ¥2,800,000 =? $ = 2,800,000/110.2 =$25,408 b) Assuming PPP holds, what should the exchange rate be at the end of the year? The PPP derives from the assumption that in the world there exists the "law of one price". This law states that identical goods should be sold at identical prices. The law of one price implies that exchange rates should adjust to compensate for price differentials across countries. There is a 2% depreciation of the U.S. dollar against the Japan Yen. Therefore, the exchange rate should be = 1.02 x 110.2 ¥112.404/ US$. c) Assuming 100% pass-through, what should be the dollar price of an Xterra at the end one year? If 100% pass through is experienced, then the the depreciation the US dollar is experienced by an inflation rate of 2% and the price of the XTerra will be ¥112.404 = 1US$ ¥2,800,000 =? = 2,800,000/112.404 = $24,910 d) Assuming 70% pass-through, what should be the dollar price of an Xterra at the end one year? If 75% pass through is experienced, then the depreciation of the US dollar is experienced by an inflation rate of 1.5% and the price of the XTerra will be The exchange rate will be = 1.015 x 110.2 ¥111.853/ US$. ¥111.853 = 1US$ ¥2,800,000 = ? = 2,800,000/111.853 = $25,032 Question 4 a) What do the financial markets suggest for inflation in Europe next year? Inflation has consistently been at 2½% in Europe and this is driven by indirect taxes, administered and energy prices. However forecast indicate that in the future, the inflation is to decline as commodity prices are expected to decrease. Also, based on the budgetary plans, fiscal impact on prices is expected to decrease. Towards the end of the year, inflation is expected to decrease to 1¾% and further modest decline in next year. Further, if the output gap has a stronger impact to core inflation, then the rate of inflation will be much lower. Increases in energy prices in a an environment which is geopolitically uncertain together with fiscal measures should be included in the no policy baseline failure of which the inflation rate will be expected to be higher. b) Estimate today’s one-year forward exchange rate between the dollar and the euro. Spot x (1+domestic interest rate)/ (1+foreign interest rate) Where: rf is the interest rate of the foreign currency rd is the interest rate of the domestic currency Spot A$/€ rate is 1.2 A$ = 3.2% € = 6.5% F= 1.2 x (1+3.2%) (1+6.5%) = 1.2 x 0.9967 = 1.1961 Therefore, the forward rate would be 1.1961 Question 5 a) Suppose the Malaysia ringgit devalues by 75% against the dollar. What is the percentage appreciation of the dollar against the Malaysia ringgit? Suppose a government has set 10 units of its currency equal to one dollar. To devalue by 75% this will change to 17.5 of it’s the Malaysian units will be equal to one dollar. Therefore, the dollar will have appreciated at a rate of = 10/17.5 x 100 = 0.5714 x 100 = 57.14% b) Suppose the dollar appreciates by 500% against the Colombia peso. How much has the peso devalued against the dollar? Suppose a government has set 10 units of its currency equal to one columbium Peso. If the dollar appreciated by 500%, then the dollar would exchange for 60 against the peso. Therefore the peso will have devalued at a rate of = 60/ x 10 = 6 x 100 = 600% Question 6 Between 2004 and 2007, the price of a room at the Thailand Sky hotel rose from baht (B) 3,200 to B 4,500. At the same time, the exchange rate went from B 1,302=$1 in 2004 to B 1,075 = $1 in 2007. By how much has the dollar cost of a room at the Thailand Sky hotel changed over this three-year period? From 2004-2007 = (B) 3,200 to B 4,500 Exchange rate = B 1,302=$1 to B 1,075 = $1 In 2004 the dollar cost of a room was B 1,302=$1, B 3,200 = ? = 3,200/1,302 = $2.458 In 2007 the dollar cost of a room was B 1,075 = $1 B 4,500 = ? = 4,500/1,075 = $4.186 Dollar change = $4.186-$2.458 = 1.728 Therefore, the dollar cost of a room at the Thailand Sky hotel changed with 1.728 for $2.458 to $4.186 over the three-year period. Read More