(a) Lilith Corporation, a MNC based in New York will need 1 million Brunei Dollars (BND)...

(a) Lilith Corporation, a MNC based in New York will need 1 million Brunei Dollars (BND) in 90 days to purchase Brunei imports. It can buy the BND for immediate delivery at spot rate of S(USD/BND) = 1.5000 or it could wait 90 days and then exchange USD for BND at the spot rate existing at that time, but Lilith Corporation will not know what the rate will be.

i. Calculate the USD amount that Lilith Corporation needs to exchange based on the current spot rate.

ii. Assume that Lilith Corporation negotiated a 90-days forward rate of F90 (USD/BND) = 1.5000, calculate the profit / (loss) should the 90-days days spot position equal to S90 (USD/BND) = 1.6700.

iii. Assume that Lilith Corporation negotiated a 90-days forward rate of F90 (USD/BND) = 1.5000, calculate the profit / (loss) should the 90-days spot position equal to S90 (USD/BND) = 1.4300.

(b) Equizuo Corporation and Mithril Corporation has entered into a 5 year currency swap for $2 million. Equizuo Corporation is a US-based MNE and Mithril Corporation is a EURbased MNE. The spot exchange rate is S (€ / $) = 1.25.

Calculate the following:

i. Interest amount that each firm need to serve at the end of the year given that US interest rate is 4.7 percent and EUR interest rate is 5.2 percent.

ii. Given the exchange rate after 1 year is S (€ / $) = 1.27, calculate the amount that Equizuo Corporation and Mithril Corporation need to pay in dollar term.

Expert Solution

i

Lilith Corporation needs 1 million Brunei Dollars and the current spot rate is S(USD/BND) = 1.500

As we know that the 1 BND fetches $1.5 So for BND 1000000 we need 1000000/1.5 $ = $ 666,666.66

ii

If the Company negotiates the contract at F90(USD/BND) = $1.5 and the spot rate after 90 days S90 (USD/BND) = 1.67 then the company could get the BND for (1000,000/1.67) = $ 5,98,802.39 but as they have entered into Futures Contract they will be obliged to pay $666,666.66 So they will bear a loss of (666,666.66 - 598,802.39) = $67,863.61

iii

If the Company negotiates the contract at F90(USD/BND) = $1.5 and the the spot rate after 90 days S90(USD/BND) = 1.43 then the company could get the BND for (1000,000/1.43) = $699,300.69 but as they have entered into Futures Contract they will pay $666,666.66 so in process they will make a profit of ( 699,300.69 - 666,666.66) = $ 32,634.03

I am really sorry I can only answer 1 question at a time

jeff jeffy answered 1 year ago

What is a tax plan for taxing 1 million residents and need 20 million dollars in...

What is a tax plan for taxing 1 million residents and need 20 million dollars in revenue that isn't already being taxed, and why/how does it relate to Adam Smiths 4 cannons of taxation?

(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...

1. An MNC has total assets of $ 100 million and debt of $ 20 million....

1. An MNC has total assets of $ 100 million and debt of $ 20 million. The firm's cost of pretax debt is 12 percent, and its equity financing cost is 15 percent. The MNC has a corporate tax rate of 20 percent. What is the capital cost of this company? 2. Discuss the pros and cons of an MNC that has a centralized cash manager that handles all investments and loans of all MNC affiliates versus each affiliate that...

From the point of view of a U.S.-based MNC, what key tax factors need to be...

From the point of view of a U.S.-based MNC, what key tax factors need to be considered? Minimum of 120 words please

In London, interest paid on pounds is 1.11%. In New york, interest paid on dollars is...

In London, interest paid on pounds is 1.11%. In New york, interest paid on dollars is 3.27%. The Spot rate is $1.5512/ pound. The One year forward rate is $1.5529/ Pound. The spread on borrowing & lending rates is zero. The bid ask spread is Zero. The arbitrageur has no money of his own but can borrow up to 1,000,000 of any local currency. A. what is the covered yield on dollars( if the investor borrows pounds in London) and...

X Corporation owns real and personal property in New York. Under New York law, X is...

X Corporation owns real and personal property in New York. Under New York law, X is liable for taxes on real property on the first day of any payment date if it owns real property in the state. The dates are 2/1, 5/1, 8/1, 11/1. For 20X7 the amounts due on each date are $300. Under New York law, a taxpayer is liable for personal property taxes on property held on the first day of the year, payable 60% on...

XYZ Corporation acquires the stock of TMP Corporation for $150 million dollars. As part of the...

XYZ Corporation acquires the stock of TMP Corporation for $150 million dollars. As part of the transaction, XYZ does an appraisal and determines that the value of all of the assets of TMP is only $100 million. Does this mean that XYZ paid too much to buy TMP? Explain your answer.

Question 1 You are the fund manager of ABC Fund, based in New York. You noticed...

Question 1 You are the fund manager of ABC Fund, based in New York. You noticed that the Egyptian T-Bills are offering one of the most competitive interest rates worldwide, and you perceived it as a lucrative investment opportunity. On 1st Jan 2019, your fund decided to invest in the Egyptian treasury bills that pays 16% annually and for this you transferred USD 1 million to Egypt. Money was converted in a bank which quoted a USD/EGP rate of 16.70/...

X Corporation exchanged a warehouse located in New York for a warehouse located in New Jersey....

X Corporation exchanged a warehouse located in New York for a warehouse located in New Jersey. The adjusted basis of the New York warehouse was $30,000. The fair market value of the New Jersey warehouse just prior to the exchange was $25,000. In addition to the warehouse, X Corporation also received $8,000 in cash. 54. The amount realized by X Corporation is: a. $8,000 b. $33,000 c. $25,000 d. Zero e. None of the above The gain realized by X...

Suppose you need $1 million dollars to start your dream business. Describe two ways you would...

Suppose you need $1 million dollars to start your dream business. Describe two ways you would generate the funds needed to start such a business. Next, discuss any risks or benefits you should be aware of when gathering these funds. Provide examples to support your response.

Question