A US based MNC with exposure to the Swedish krona could best cross hedge with

Solutions

Expert Solution

forward contract on Euro

As the EURO and Swedish Krona are positively correlated.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Dow Chemical, a US-based firm, seeks to hedge most of the exposure of its European operations...

Dow Chemical, a US-based firm, seeks to hedge most of the exposure of its European operations by borrowing in Swiss francs (CHF). At the same time the French tire manufacturer Michelin is seeking US dollars to finance additional investment in its US manufacturing plants. Both firms want the equivalent of $150 million US dollars in fixed-rate financing for 10 years. Dow can issue dollar-denominated debt at an interest rate of 7.5 percent per year, or Swiss franc denominated debt at...

On October 10, 2019, the exchange rate for the US Dollar vs. the Swedish Krona was $1 = SEK 9.95. Over the following year

On October 10, 2019, the exchange rate for the US Dollar vs. the Swedish Krona was $1 = SEK 9.95. Over the following year, the US Dollar weakened vs. the Swedish Krona and the exchange rate was $1 = SEK 8.78 on October 10, 2020. Imagine you are an executive at a Swedish company that manufactures all of its products in Sweden. You are thinking of expanding to the United States. These two questions affect of the weakening of...

(1)A US based MNC plans to invest in a new project EITHER in US or in...

(1)A US based MNC plans to invest in a new project EITHER in US or in Mexico. The new project is expected to take up a quarter of the firm’s total investment fund. The balance of the corporation’s investment is exclusively in an existing US project. The features of the proposed new project are as follows: Existing US project US project (new) Mexico project (new) Expected rate of return E(R) 10% 15% 15% Standard deviation of E(R) 0.10 0.11 0.12...

4. GR Inc is a US based MNC that conducts a part of its business in...

4. GR Inc is a US based MNC that conducts a part of its business in Singapore. Its US sales are denominated in US dollars while its sales in Singapore are denominated in Singaporean dollars. Its pro-forma income statement for the next year is shown below. Assume US Sales will be unaffected by the exchange rate. Also Assume the Singaporean dollar earning will be remitted to the US at the end of the period. The average rate is USD 0.6956/...

GR Inc is a US based MNC that conducts a part of its business in Singapore....

GR Inc is a US based MNC that conducts a part of its business in Singapore. Its US sales are denominated in US dollars while its sales in Singapore are denominated in Singaporean dollars. Its pro-forma income statement for the next year is shown below. Assume US Sales will be unaffected by the exchange rate. Also Assume the Singaporean dollar earning will be remitted to the US at the end of the period. The average rate is USD 0.6956/ SGD...

4. Spartan Inc. (a US based MNC) is planning to open a subsidiary in Switzerland to...

4. Spartan Inc. (a US based MNC) is planning to open a subsidiary in Switzerland to manufacture shoes. The new plant will cost SF 1.0 billion. The salvage value of the plant at the end of the 4 yr economic life is estimated to be SF 200 million net of any tax effects. This plant will also call for extra inventory holding of SF 300 million, and extra accounts payables of SF 200 million. Projected sales from this new plant...

Backward Industries - a US based MNC - projects it will receive 50,000 Brazilian Real (BRZ)...

Backward Industries - a US based MNC - projects it will receive 50,000 Brazilian Real (BRZ) from a Brazilian customer in 3 months, however, it is only 50% certain that the money will actually be paid out as the customer is currently in financial distress. Backward wants to reduce its exposure to foreign exchange rate risk. Which of the following is the best option for Backward in this situation? A. Tell your Brazilian customer not to pay B. Enter into...

IBM., a successful US-based MNC, is considering how to obtain funding for a project in Argentina...

IBM., a successful US-based MNC, is considering how to obtain funding for a project in Argentina during the next year. It considers the following information: • US Risk free rate= 8% • Argentine risk free rate=12% • Risk premium on dollar-denominated debt provided by US creditors=3% • Risk premium on peso-denominated debt provided by US creditors=5% • Beta of project (expected sensitivity of project returns to US investors response to the US market)=1.5 • Beta of project (expected sensitivity of...

(a)Identify and the briefly explain the motivation for direct foreign investment. (b)A US based MNC plans...

(a)Identify and the briefly explain the motivation for direct foreign investment. (b)A US based MNC plans to invest in a new project either in the U.S. or in Mexico. Currently 75% of its investment is in the U.S. Historical records show that the variability of returns on this existing investment measured by the standard deviation is 0.08. A four year forecast of the strategic features of the proposed new project are summarized below as follows: If located in U.S. If...

Assume that you are a US based MNC. Please tell me how you would assess and...

Assume that you are a US based MNC. Please tell me how you would assess and reduce the economic exposure for a company that the US MNC owns in Lebanon.

Subjects