INTERNATIONAL FINANCIAL MANAGEMENT FIN: 4005

UNIVERSITY OF TECHNOLOGY, JAMAICA

UNIT 2
Tutorial Questions

1. Assume a simple world in which the U.S. exports soft drinks and beer to France and
imports wine from France. If the U.S. imposes large tariffs on the French wine, explain
the likely impact on the values of the U.S. beverage firms, U.S. wine producers, the
French beverage firms, and the French wine producers.

2. IMF.
a. What are some of the major objectives of the IMF?

b. How is the IMF involved in international trade?

3. Why do you think international trade volume has increased over time? In general, how
are inefficient firms affected by the reduction in trade restrictions among countries and
the continuous increase in international trade?

4. Balance of Payments.
a. Of what is the current account generally composed?
Internation Trade accounts that is goods and services
Primary Income account
Secondary Income Account
b. Of what is the capital account generally composed?
The capital account measures the flow of funds between one country and all other
countries due to the financial assets transferred across country borders by people who move to a
different country as well as patents and trademarks

5. 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.

If it appreciates against all other currencies then

6. Adenoy Corp., U.S.based exporter invoices its exports to Germany in. If it expects that
the euro will appreciate against the dollar in the future, should it hedge its exports with a
forward contract? Explain.

7. If the direct exchange rate of the euro is worth $1.30, what is the indirect rate of the euro?
That is, what is the value of a dollar in euros?

1 euro= $1.30

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1 dollar= ?euro
1/1.30= 0.79 euro

8. Toronto’s Bank’s bid price for American dollars is $1.0885 and its ask price is $1.0886.
What is the bid/ask percentage spread?

1.0885/1.0886= 0.9999081

9. Cross Exchange Rate. Assume Poland’s currency (the zloty) is worth $.31 and the Japanese
yen is worth $.0095. What is the cross rate of the zloty with respect to yen? That is, how many
yen equal a zloty?

0.31/0.0095= 32.63 yen equal 1 zlotty

10. Today you notice the following exchange rate quotations:

You need to purchase 100,000 Canadian dollars with U.S. dollars. How many U.S. dollars
will you need for your purchase?

X = 8.04y

Y= 0.13

1 peso= 0.13 CAN

IF ONE PESO= 0.13 CAN

IF $1=8.40 PESO THEN

0.01626
11. Eurocredit Loans.
a. With regard to Eurocredit loans, who are the borrowers?
b. Why would a bank desire to participate in syndicated Eurocredit loans?

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 c. What is LIBOR and how is it used in the Eurocredit market?
d. What has replaced Libor?
e. What's the difference between LIBOR and SOFR

Group Assignment:

Visit any website that provides quotations for various exchange rates and select any currency
pair except those involving the Jamaican dollar. Use the information to answer the following
questions:
a. Designate one currency as the foreign currency and the other the domestic currency.
b. What are the direct and indirect exchange rates?
c. Based on your answers to question b, determine the number of units of the domestic
currency per foreign currency.
d. What is the value of one unit of the domestic currency in terms of foreign currency?
e. Based on your answers to question b, how much units of foreign currency would be
needed to pay for 400,000 units of home currency.
f. Similarly, how much units of home currency would be needed to buy 200,000 units of
foreign currency

Individual presentation question 1:

POINT/COUNTER-POINT:
Should Trade Restrictions be Used to Influence Human Rights Issues?
POINT: Yes. Some countries do not protect human rights in the same manner as the U.S. At times, the
U.S. should threaten to restrict U.S. imports from or investment in a country if it does not correct human
rights violations. The U.S. should use its large international trade and investment as leverage to ensure
that human rights violations do not occur. Other countries with a history of human rights violations are
more likely to honor human rights if their economic conditions are threatened.

COUNTER-POINT: No. International trade and human rights are two separate issues. International
trade should not be used as the weapon to enforce human rights. Firms engaged in international trade
should not be penalized by the human rights violations of a government. If the U.S. imposes trade
restrictions to enforce human rights, the country will retaliate. Thus, the U.S. firms that export to that
foreign country will be adversely affected. By imposing trade sanctions, the U.S. government is indirectly
penalizing the MNCs that are attempting to conduct business in specific foreign countries. Trade
sanctions cannot solve every difference in the beliefs or morals between the more developed countries
and the developing countries. By restricting trade, the U.S. will slow down the economic progress of
developing countries.

WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you
support? Offer your own opinion on this issue.

Individual Presentation Question 2:

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U.S.-based MNCs commonly invest in foreign securities.

a. Assume that the dollar is presently weak and is expected to strengthen over time. How will
these expectations affect the tendency of U.S. investors to invest in foreign securities?

b. Explain how low U.S. interest rates can affect the tendency of U.S.-based MNCs to invest
abroad.

c. In general terms, what is the attraction of foreign investments to U.S. investors?

Individual Presentation 3:

POINT/COUNTER-POINT:
Should Firms That Go Public Engage in International Offerings?

POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public
offering (IPO), it is naturally concerned about whether it can place all of its shares at a
reasonable price. It will be able to issue its stock at a higher price by attracting more investors. It
will increase its demand by spreading the stock across countries. The higher the price at which it
can issue stock, the lower is its cost of using equity capital. It can also establish a global name by
spreading stock across countries.

COUNTER-POINT: No. If a U.S. firm spreads its stock across different countries at the time
of the IPO, there will be less publicly-traded stock in the U.S. Thus, it will not have as much
liquidity in the secondary market. Investors desire stocks that they can easily sell in the
secondary market, which means that they require that the stocks have liquidity. To the extent that
a firm reduces its liquidity in the U.S. by spreading its stock across countries, it may not attract
sufficient U.S. demand for the stock in the U.S. Thus, its efforts to create global name
recognition may reduce its name recognition in the U.S.

WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do
you support? Offer your own opinion on this issue.