FNCE 404 Exam Review – Fall2012
Prof. Eloisa Perez
Q1. Micca Alloys, Inc. is known as a specialty components and metals company found in Detroit, The state of michigan. The company focuses primarily on specific gold and silver and elements which are used in several pigment applications in many additional industries which includes cosmetics, kitchen appliances, and many different high tinsel metal making equipment. Micca just acquired a shipment of phosphates from Ghana for 15, 000, 1000 cedis, payable in six months. Micca's cost of capital is 12%. Assumptions
Shipment of phosphates from Bekwai, ghana, Ghanaian cedis
10, 1000, 000
Micca's cost of capital (WACC)
Location exchange level, cedis/$
1 . 90
Six-month frontward rate, cedis/$
1 . 96
Anticipated spot exchange rate in 6 months, cedis/$
2 . 00
Options in Ghanaian cedis:
Strike selling price, cedis/$
installment payments on your 00
2 . 00
Alternative premium (percent)
2 . 00%
Six-month rate of interest for asking for (per annum)
Six-month interest for investing (per annum)
2 . 00%
(a) In the event the company would like to offset their particular exposure, what options they may have? And which is the best? Why?
Q2. From basic price levels of 100 in 2000, Japanese people and U. S. prices in 2003 stood for 102 and 106, respectively. (a) If the 2000 bucks: ¥ exchange rate was $0. 007692, what should the exchange rate be in the year 2003?
(b) In fact , the exchange rate in 2003 was ¥1 sama dengan $0. 008696. What may account for the discrepancy? (Price levels had been measured using the consumer value index – CPI).
Q3. You invariably is an American investor. Suppose modern-day exchange rate is $1. 35/€. The six-month rates of interest on us dollars and pounds are five per cent and 4% per annum, correspondingly. The six-month forward rate is $1. 3478/€. Another exchange prediction service has predicted the fact that euro will appreciate to $1. 3790/€ within six months. (a) Employing $1, 500, 000 or perhaps its comparative in pounds show...