FINAL EXAMINATION INTERNATIONAL BUSINESS 670 This is an open book test and you may discuss an answer with other students. But you must submit your own answer in your own words! Further any information taken from the text or other sources must be paraphrased. That is, it also must be put into your own words. No quotes! Warning! Common or group answers are not accepted and will receive zero credit. Read The Questions Carefully and Be Sure to Address All the Points Raised Answer All 9 questions (100 points) Short Answer 1-8 [10 points each and each about 3/4 â€“ 1 page double-spaced]: 1. If the spot rate for Swiss Francs versus US Dollars is one SF equals 1.05 US $, and the annual interest rate on fixed rate one-year deposits of SF is 0.2% and for US$ is 1.25%, what is the nine-month forward rate for one dollar in terms of SF? Assuming the same interest rates, what is the 18-month forward rate for one SF in US$? Is this a direct or an indirect rate? If the forward rate is an accurate predictor of exchange rates, in this case will the SF get stronger or weaker against the US dollar? What does this indicate about the marketâ€™s inflation expectations in Switzerland compared to the US? 2. On September 1st, 2016, SWATCH expects to ship 1,100,000 watches from its plant in Switzerland to US, which it will sell through its US dealers on 270-day terms at $85.00 each. ThusSWATCH will receive payment from its dealers on May 29th, 2017. Assuming that SWATCH needs to cover its expenses in Switzerland and thus wants to hedge its SF exposure using a forward contract with a Swiss bank in the US, what is the minimum amount of SF they should receive on May 29th, 2017 given the nine month forward rate for one US dollar in terms of SF that you calculated in problem one? What are two other ways SWATCH might hedge their SF/US$ exposure? 3. In his book Manias, Panics and Crashes (see the Introduction and Chapters posted on the class website under Cases – Kindleberger pdf #1 & 2) Charles Kindleberger explains the three stages of how a financial crisis develops and evolves over time. Please briefly explain these stages and how the Icelandic, Mexican and Russian Financial Crises as presented in the Hill text and the class case presentation follow this economic pattern or paradigm 4. Apple, whose global sales are generally dollar denominated, finds it has excess cash of $155,000,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.85% or a three-year SF denominated deposit paying 1.85% since it expects the SF to appreciate 1.0% per annum against the dollar over the next three years. Using cash flow analysis determine the best currency option in whichApple should invest. Be sure to show your complete calculations of the annual return on each investment at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rate. Would your answer change if Apple revised its outlook for the SF to appreciate 1.15% per year? Show all calculations!!! 5. Country A has 15000 units of labor and can produce 2 goods, manufactures and food. Aâ€™s producers take 3 units of labor to produce one unit of manufactures and 6 units to produce one unit of food. Country B has 30000 units of labor and takes 5 units of labor to produce one unit of manufactures and 3 units to produce one unit of food. What is the price of manufactures in terms of food at which A and B would respectively supply manufactures? What would A export in Adam Smithâ€™s world? What is the amount it could supply? 6. Companies can benefit from lowering their corporate income taxes globally. Explain how Apple has done this and how some US pharmaceutical companies are using M&A to achieve similar results through inversions. Do you think this is unethical or unpatriotic? 7. Explain how Timberla
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