Reno, Inc., is considering a project to establish a plant for producing and selling consumer goods
in an under developed country. Assume that the host country’s economy is very dependent on
oil prices, the local currency of the country is very volatile, governance standards are quite
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compromised with a high pedigree of unfair practices and the sovereign or country risk is
considered to be high. It is known that the host country’s economic conditions are un-related to
U.S. economy and the global economy other than material changes that relate and/or emanate
in external environment due to oil price changes.
Required:
a) Should the required rate of return (and therefore the risk premium) on the project be
higher or lower than that of other alternative projects in the i) United States; ii) any
other G-7 country; iii) Pakistan? Explain with cogent reasons.
b) Assume that the required rate of return is 20% in the first year of operations and
increases by 2% every year for 5-years. Based on financial projections and estimated
cash flows, return on equity (ROE) is expected to be in the ball park of 18% in Year-1,
whereas moving forward in Year-2 through Year-5 it is expected to remain in range of
30% per annum. Based on these numbers, would you recommend that Reno should
move ahead with this new investment? Why or why not? Explain with cogent reasons.

2. [2] What are three causes of banks losing their cost advantages in acquiring funds in recent years?

3. [2] What are three reason banks have been losing income advantages on their assets in recent years

4. [1] Has the invention of the computer been a major factor behind the decline of the banking industry? Explain your answer.

5. [1] Why is loophole mining so prevalent in the banking industry in the United States?

6. [1] What role did the shadow banking system play in the decline of U.S. commercial banking?

7.[1] How do sweep accounts allow banks to avoid reserve requirements?

8. [1] How did commercial banks respond to their relative decline in traditional banking?

9. [2] Tyler Bank starts its first day of operations with $9 million in capital. A total of $130 million in checkable deposits is received. The bank makes a $25 million commercial loan and another $50 million in mortgages. Assume that required reserves are 8%. (a) What does the bank balance sheet look like? (b) How well capitalized is the bank? (c) Calculate the risk-weighted assets and risk-weighted capital ratio after the bank’s first day assuming reserves risk weights are 0%, mortgages rates are 50% and commercial loan rates are 100%.

1. The U.S. multinational manufacturing firm, Greenwich Industries, is debating whether to invest in a 2-year project in Japan. The project’s expected cash flows consist of an initial investment of ¥1 million with cash inflows of ¥ 400,000 in Year 1 and ¥ 800,000 in Year 2. The risk-adjusted cost of capital for this project is 11%. The current exchange rate is 115 yen per dollar.

   Risk-free interest rates in the United States and Japan are:

   U.S. government bond rates:

   •     1-year bond  2.4%

   •     2-year bond  3.0%

   Japan government bond rates:

   •     1-year bond  0.15%

   •     2-year bond  0.35%

   Which of the following answers is CORRECT about the expected future exchange rates 1 year from now and 2 years from now?

   		117.58 dollar per yen for one year rate and 121.15 dollar per yen for two year rate
   		0.008891 dollar per yen for one year rate and 0.009161 dollar per yen for two year rate
   		0.008891 yen per dollar for one year rate and 0.009161 yen per dollar for two year rate
   		117.58 yen per dollar for one year rate and 121.15 yen per dollar for two year rate

Refer to Greenwich Industries in question 19. If Greenwich undertakes the project, what is the net present value of the project in U.S. dollars?

1. Which of these transactions are part of the balance of payments?

2. Which one enters with a + sign?

3. Which one enters with a - sign?

4. Which of these are current account transactions?

5. Which of these are financial account transactions?

6. What is the current account balance?

7. What is the trade balance?

8. Suppose that the net international investment position at the beginning of 2017 is 0. What is the net international investment position at the end of 2017 (at accounting value)?

You plan to visit one of your friends living in Colorado, America in three months. You expect to incur the total cost of US$20,000 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is RM_____/ US$ and the three-month forward rate is RM_____/ US$ (please refer to Table 1 below for your given rates). You can buy the three-month call option on US$ with the exercise rate of RM4.3/ US$ for the premium of RM1 per US$. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 3.2 percent per annum in Malaysia and 2 percent per annum in the United States.

1. Calculate your expected ringgit cost of buying US$20,000 if you choose to hedge via call option on US$.

2. Calculate the future ringgit cost of meeting this US$ obligation if you decide to hedge using a forward contract.

3. At what future spot exchange rate will you be indifferent between the forward and option market hedges?

4. Illustrate the future ringgit costs of meeting the US$ payable against the future spot exchange rate under both the options and forward market hedges.

TABLE1

Despite the growth in digital entertainment, the nation’s 400 amusement parks have managed to hold on to visitors. A manager collects data on the number of visitors (in millions) to amusement parks in the United States. A portion of the data is shown in the accompanying table.

B-1) Estimate a linear trend model and an exponential trend model for the sample. (Round your answers to 2 decimal places.)

B-2 Calculate the MSE for both trends. (Do not round estimates or intermediate calculations. Round final answers to 2 decimal places.)

b-3. By comparing MSE, which of the above methods perform better? Exponential or Linear?

c-1. Using the model of best fit, make a forecast for visitors to amusement parks in 2008. (Do not round estimates or intermediate calculations. Round your answer to 1 decimal place.)

c-2. Using the model of best fit, make a forecast for visitors to amusement parks in 2009. (Do not round estimates or intermediate calculations. Round your answer to 1 decimal place.)

Worksheet: Stem Cell Research

Assignment Overview

Stem cell research is a controversial topic in the United States and the world. For this assignment, you will conduct research on stem cell research and determine and defend your position on the issue.

This assignment is intended for you to apply research and critical thinking skills to support an argument on a controversial issue and communicate effectively that position in writing.

Assignment Details:

Perform the following tasks:

• Complete the reading assignment and the interactive lesson before attempting this assignment.
• Complete the following:
  • Perform a search on the Internet or the online library (LIRN) for the terms “stem cell and research” or “stem cell and controversy.”
  • Based on your search, write an essay (approximately 100 to 150 words in length) in the space provided in the Assignment Worksheet section on the next page that gives three reasons to either:
    • Defend/support stem cell research.
    • Oppose it stem cell research.
• Submit the Week 2 Assignment.
• Include the proper file naming convention: PSY278_wk2_assn_jsmith_mmddyyyy.

Rubric: See Written Assignment Rubric for grading details.

Grading:

Assignment Worksheet:

[Write your essay here…]

Worksheet: Stem Cell Research

Assignment Overview

Stem cell research is a controversial topic in the United States and the world. For this assignment, you will conduct research on stem cell research and determine and defend your position on the issue.

This assignment is intended for you to apply research and critical thinking skills to support an argument on a controversial issue and communicate effectively that position in writing.

Assignment Details:

Perform the following tasks:

• Complete the reading assignment and the interactive lesson before attempting this assignment.
• Complete the following:
  • Perform a search on the Internet or the online library (LIRN) for the terms “stem cell and research” or “stem cell and controversy.”
  • Based on your search, write an essay (approximately 100 to 150 words in length) in the space provided in the Assignment Worksheet section on the next page that gives three reasons to either:
    • Defend/support stem cell research.
    • Oppose it stem cell research.
• Submit the Week 2 Assignment.
• Include the proper file naming convention: PSY278_wk2_assn_jsmith_mmddyyyy.

Rubric: See Written Assignment Rubric for grading details.

Grading:

Assignment Worksheet:

[Write your essay here…]

Boeing just signed a contract to sell a Boeing 737 aircraft to British Airways and will receive £50 million in six months. The current spot exchange rate is $1.3030/£ and the six-month forward rate is $1.3100/£. Boeing can buy a six-month put option on the British pound with an exercise price of $1.3500/£ for a premium of $0.0542/£. Currently, the six-month interest rate is 1.450 percent per annum in the United States and 0.410 percent per annum in France. Boeing believes that the British pound would likely appreciate from its current level, but would still like to hedge its exchange exposure.

1. Explain how Boeing should do a forward hedge. Compute the guaranteed dollar proceeds from the British Airway sales if Boeing decides to hedge using a forward contract.

2. If Boeing decides to hedge using put options on the British pound, what would be the “expected” net dollar proceeds from the British Airway sale? Assume that Boeing regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.

3. At what future spot exchange rate do you think Boeing will be indifferent between the option hedge and forward hedge?

** Illustrate your answers with the proper post-hedging net $ proceed charts, labeling your foreign exchange rates and net proceeds properly.

SHORT ANSWERS

a. Macroeconomic Disequilibrium Describe the macroeconomic disequilibrium in the Soviet Union. Why was there a disequilibrium? What was the resulting problem?

b. Indicative Planning Some have argued that indicative planning is attractive as a mechanism for resource allocation because it eliminates some of the negative features of directive planning while retaining positive features. Comment.

c. Why has investment been very high in the East Asian Economies? When answering the question, relate to concepts such as saving, consumption, the structure of the financial system, etc.

ESSAY TOPICS

A. Active Labor Market Policy Explain the role of government in promoting full employment in Sweden through its active labor market policies. Explain why active labor market policies are more important in Sweden than in the United States. What are the three general programs constituting active labor market policy in Sweden. Explain them and their relative importance in Sweden.

B. The Rhine Model Describe the German (Rhine) economic model. What are its characteristics? What are its main institutions? How has Germany reformed its labor markets in the early 2000s? What has been the consequence of the euro on the German economy?

C. Describe the East Asian economic miracle. What were its main characteristics? How involved were respective countries’ governments? What happened with labor, capital, etc? Was is really a miracle?