Question

In: Finance

Mary owns a U.S. based company and wants to open a store in Japan. She will...

Mary owns a U.S. based company and wants to open a store in Japan. She will have to exchange her USD for Yen in order to finance the rent and payroll. Which of the following situations would put her at the greatest advantage as far as the exchange rates go?  

Depreciating yen relative to USD

Political unrest in the United States

Increased demand for yen

Rapid inflation in the United States

Decreased demand for USD

Solutions

Expert Solution

Mary is going to Purchase YEN for USD, so the situations, which will benefit Mary are discussed below.

Let's Evaluate them one by one.

Depreciating YEN relative to USD : This will benefit Mary as by this way Yen will become cheaper as compared to USD, and she will be able to purchase More YEN compared to USD. For e.g. Before Depreciation rate is 10.15 YEN / USD and after Depreciation rate comes as 10.155 YEN / USD, so she will be able to purchase more YEN for 1 USD. This way she be able to pay for her rent and payroll.

Political Unrest in United States: Political unrest will weaken the sentiments for future growth of US economy. This will create a downward pressure on USD and USD will become cheaper as compared to YEN. E.g. So our rate in this case will become 10.10 YEN / USD compared with 10.15 YEN / USD earlier. This will result in more cost for Mary to pay for rent and payroll as she will be able to buy Lesser YEN in one dollar. This will not benefit Mary

Increased demand for YEN: This will also increase the price of the YEN compared to USD as per the law of demand and supply which states that Price of Goods increases with increase in Demand keeping the supply constant. 10.10 YEN / USD compared with 10.15 YEN / USD earlier. This will result in more cost for Mary to pay for rent and payroll as she will be able to buy Lesser YEN in one dollar, hence no benefit

Rapid Inflation in US: Increased inflation will bring lesser demand for US goods and as a result will weaken the GDP prospects of the Country. This will slowdown the US currency. So YEN will become dearer compared to USD. This situation will not benefit Mary. 10.10 YEN / USD compared with 10.15 YEN / USD earlier. This will result in more cost for Mary to pay for rent and payroll as she will be able to buy Lesser YEN in one dollar, hence no benefit.

Decreased Demand for USD: With demand of law and supply, with decreased demand USD will become cheaper compared to YEN. So again Mary will have 10.10 YEN / USD compared with 10.15 YEN / USD earlier. which will have more costs to purchase YEN and will not benefit Mary.

As a result, only First Situation is going to Benefit her which is Depreciating yen relative to USD


Related Solutions

Mary Magnolia wants to open a flower shop, the Petal Pusher, in a new mall. She...
Mary Magnolia wants to open a flower shop, the Petal Pusher, in a new mall. She has her choice of three different floor sizes, 200 square feet, 500 square feet, or 1,000 square feet. The monthly rent will be $1 a square foot. Mary estimates that if she has F square feet of floor space and sells y bouquets a month, her variable costs will be cv(y) = y^ 3/ 4F per month. (1) If she has 200 square feet...
A party shop owner wants to open a 2nd store in a nearby town, and she...
A party shop owner wants to open a 2nd store in a nearby town, and she has found a building and land to purchase for $1.5 Million immediately. She believes that the additional store will increase her sales by $300,000 per year over the next 12 years. The new store will incur an additional $100,000 per year in operating and labor expenses. If the owner's MARR is 10%, use the net present worth criterion to determine if she should proceed...
Your client, Mary Barnhart, wants to open her own business. She is having difficulty understanding the...
Your client, Mary Barnhart, wants to open her own business. She is having difficulty understanding the purposes of financial statements and how they fit together across time. REQUIRED: Write a one-page letter to Ms. Barnhart explaining the purposes of the income statement, statement of owners' equity, and the balance sheet and how they are linked. Use the attached example for guidance. Henry Whiteapples 123 Maple Street Columbus, OH, 45888 December 21, 2004 Dear Mr. Whitebridge, I understand you are concerned...
The Williams Company, a U.S.-based company, owns 100% of a European Subsidiary (ES). The investment in...
The Williams Company, a U.S.-based company, owns 100% of a European Subsidiary (ES). The investment in ES totals $10 million (euros 13.5 million) as of the end of Year 1. This represents an initial investment of $6 million and retained earnings of $4 million. The Currency Translation Adjustment (CTA) account included in Other Comprehensive Income (OCI) totals $1 million (loss) at the end of Year 1. During Year 2, Williams decided to sell 25% of ES to the Tremont Company,...
Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a...
Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $36,000 in fixed costs to the $272,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management...
Mary Willis is the advertising manager for Culver Shoe Store. She is currently working on a...
Mary Willis is the advertising manager for Culver Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $14,000 in fixed costs to the $133,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $12 per pair of shoes. Management...
Mary wants to buy a car but is unsure how much of she can afford. The...
Mary wants to buy a car but is unsure how much of she can afford. The maximum monthly payment she can afford is $780. Her bank's interest rate is 14% annualy if she pays off loan over 5 years. what is the maximum amount she can afford to borrow? - impossible to calculate with given data - she can afford $53,325.05 -she can afford $46,800.03 -she can afford $33,522.07 (show all excel work)
Scenario: Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on...
Scenario: Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the $270,000 in fixed costs currently spent. In addition, Mary is proposing a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair...
Jacksonville Corp. is a U.S.‑based firm that needs $500,000. It has no business in Japan but...
Jacksonville Corp. is a U.S.‑based firm that needs $500,000. It has no business in Japan but is considering one‑year financing with Japanese yen, because the annual interest rate would be 3 percent versus 5 percent in the United States. Assume that interest rate parity exists. a) Can Jacksonville benefit from borrowing Japanese yen and simultaneously purchasing yen one year forward to avoid exchange rate risk? Explain. b) Assume that Jacksonville does not cover its exposure and uses the forward rate...
Jacksonville Corp. is a U.S. based firm that needs $500,000. It has no business in Japan...
Jacksonville Corp. is a U.S. based firm that needs $500,000. It has no business in Japan but is considering one year financing with Japanese yen, because the annual interest rate would be 5 percent versus 9 percent in the United States. Assume that interest rate parity exists. 1. Can Jacksonville benefit from borrowing Japanese yen and simultaneously purchasing yen one year forward to avoid exchange rate risk? Explain. 2. Assume that Jacksonville does not cover its exposure and uses the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT