Unit 2 Tutorial2023

INTERNATIONAL FINANCIAL MANAGEMENT FIN: 4005
UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINISTRATION
UNIT 2
Tutorial Questions
1. French President Emmanuel Macron, has imposed a 3% digital services tax on the revenues of
big technology companies like Facebook, Google and Amazon. The measure will target three
types of activities; online advertising, online intermediary activities and the sale of user data.
France exports a range of products to the US including handbags, champagne, aircrafts and
Gruyere cheese.
a. What effects could this have on the tech companies and how might the US respond?
b. Choose one French industry and explain how the actions of the US identified in part a) may af-
fect the value firms in that industry.
2. IMF.
a. What are some of the major objectives of the IMF?
The IMF has three critical missions: furthering international monetary cooperation, encouraging
the expansion of trade and economic growth, and discouraging policies that would harm prosper-
ity.
Supporting global cooperation: The IMF works as a stable world institution. It helps resolve
monetary problems. It also promotes global cooperation among the member countries. Enabling
expansion of global trade: The IMF aims to support the balanced expansion of international
trade.
Major functions of the IMF are: To promote exchange rate stability, to maintain orderly ex-
change arrangements among members, and to avoid competitive exchange depreciation.
b. How is the IMF involved in international trade?

It fosters among these countries cooperative monetary policies that stabilize the exchange of one
national currency for another
3. Does the USA has a trade have a trade surplus or deficit with China? What measures can the US
government put in place to improve its current account balance? How will these measures affect
its importers and exporters?
Overall trade with China last year easily surpassed previous records, and the U.S. trade
deficit with China grew 8.3 percent annually to $382.9 billion, the second-highest total on
record. U.S DEMAND PRODUCT FROM CHINA. The U.S. government wants to rebuild do-
mestic production, especially of critical items, and reduce dependence on an increasingly hostile
1
4. The Federal Reserve (the Fed) has been aggressively increasing interest rates to reduce the
high inflation in the USA. How will this affect investment in US securities? If the US
dollar is expected to depreciated against other currencies, how will direct foreign invest-
ment of US-based MNCs be impacted?
5. Balance of Payments.
a. Of what is the current account generally composed?
The four major components of a current account are goods, services, income, and current
transfers. It measure the country income
b. Of what is the capital account generally composed?

which records all transactions made between entities in one country with entities in the rest of
the world. These transactions consist of imports and exports of goods, services, capital, and as
transfer payments such as foreign aid and remittances.
The capital account measures the changes in national ownership of assets
6. Would the U.S. balance of trade deficit and hence its current account, be larger or smaller if the
dollar depreciates against all currencies, versus depreciating against some currencies but
appreciated against others? Explain.
ANSWER: If the dollar weak-

ens against all currencies, the
U.S. balance of trade
ANSWER: If the dollar weak-
ens against all currencies, the
U.S. balance of trade
ANSWER: If the dollar weakens against all currencies, the U.S. balance of trade
deficit will likely be smaller. Some U.S. importers would have more seriously
considered purchasing their goods in the U.S. if most or all currencies
simultaneously strengthened against the dollar. Conversely, if some currencies
weaken against the dollar, the U.S. importers may have simply shifted their
importing from one foreign country to another.
7. Adenoy Corp., U.S.based exporter invoices its exports to Germany in euros.
2
If it expects that the euro will depreciate against the dollar in the future, should it hedge its exports
with a forward contract? Explain.
8. i) If the direct exchange rate of the euro is worth $1.0703, what is the indirect
rate of the euro? That is, what is the value of a dollar in euros?
1 euro = 1.0703
1/1.0703= 0.934
ii) Hoosac Inc., a US- based firm expects to receive €1.6 million. What is the equivalent US dollars
using the current exchange rate?
0.934 *1.6 = 1494400
iii) If the company owes $900K, what is the equivalent US dollars?

900000 / 0.934=
9. What are some the factors affecting bid/ask spreads. Regional Bank’s bid price for Australia dollars
is
$0.6656 and its ask price is $0.7026. What is the bid/ask percentage spread?
Bid/ask % spread = ask rate – bid rate

ask
rate
0.7026-0.6656/0.7026 = 0.053
10. i) Assume the following information:

New Zealand dollar (NZD) = $0.6040
British pound(£). = $1.22441
What is the cross exchange rate of the pound with respect to the NZD? That is how many NZD equal
one pound?
1.22441/0.6040 =2.027
1 British pound(£)= 2.027 NZD

ii) If the Canadian dollar ($C) is worth EUR0.6986 and the euro is worth 149.9720 yen, what is the
cross rate of the Canadian dollar with respect to yen?
1$C = EURO 0.6986

1 EURO =149.9720 yen
Convert 1/ 149.9720 = 0.0066
1$C = EURO 0.6986
1$yen = EURO 0.0066
3
1 yen= 0.0094$C
11. Today you notice the following exchange rate
quotations:
*$1 is equal to 3.00 Argentine pesos
*1 Argentine peso = 0.50 Canadian dollars
* You need to purchase 100,000 Canadian dollars with U.S. dollars. How many U.S. dollars will you
need for your purchase?
1 us = 3.00 Argentine pesos

1 Argentine peso = 0.50 Canadian dollars
Convert
1 can = 1.5 Argentine peso
3/2=1.5
1 us = 1.5 can
66,6667 us = 100,000 can
Individual Presentations Questions
1. Jamaica’s trade deficit for the period January 2018 to October 2018 was US$3.5 billion reflecting
a growing amount over the comparable period the previous year. The Government is contemplat-
ing several measures to reduce the deficit including encouraging domestic companies to increase
their exports.
a. Outline what measures the Government could use and how it would assist the firms.
b. It is sometimes suggested that a floating exchange rate will adjust to reduce or eliminate any
current account deficit. Explain why this adjustment would occur.
2. Jamaican companies are being encouraged to list on the Junior Stock Exchange to benefit
from the exemption from payment of corporate tax.
a. How might such firms gain a competitive advantage in international trade?
b. Would lower corporate income tax rates, provide an unfair advantage?
3. Identify some of the major global factors affecting international trade. Choose a Fortune 500
company and discuss the impact of these factors on the company.

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INTERNATIONAL FINANCIAL MANAGEMENT FIN: 4005

UNIVERSITY OF TECHNOLOGY, JAMAICA

b. How is the IMF involved in international trade?

b. Of what is the capital account generally composed?

ANSWER: If the dollar weak-

7. Adenoy Corp., U.S.based exporter invoices its exports to Germany in euros.

iii) If the company owes $900K, what is the equivalent US dollars?

Bid/ask % spread = ask rate – bid rate

10. i) Assume the following information:

1 British pound(£)= 2.027 NZD

1$C = EURO 0.6986

1 us = 3.00 Argentine pesos

66,6667 us = 100,000 can

Individual Presentations Questions

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