FIN 4230 – International Finance

FIN 4230 – International Finance

Final Exam

Summer 2020

Dr. Geofrey Mills

DUE: SATURDAY August 15, 2020 @ Midnight

The midterm exam is worth 15% of your final grade and covers the material from Chapters 9 – 14 & 16.

Instructions:

· Please answer each question. I do grade with liberal partial credit so please attempt each and every question as a blank questions will necessarily be given a ‘0’ grade

· This exam is given on the honor system and you may use the following:

· Financial calculator

· 2 sheets of paper, to be used as a study/memory aid with anything written on then that you wish, both sides

· You will have 3 hours to complete the exam from the moment you open the exam file, please do not read it ahead of time

· Complete the exam in a word file

· For problems involving calculation: Show all work – I do not give credit for answers only I want to see that you understand the finance involved in arriving at a solution

· Once you are done please submit to the midterm exam tab in our course site

· Each question is worth 3 points.

Good luck!!

1) Lexington Co. is a U.S.based MNC with subsidiaries in most major countries.  Each subsidiary is responsible for forecasting the future exchange rate of its local currency relative to the U.S. dollar.  Comment on this policy.  How might Lexington Co. ensure consistent forecasts among the different subsidiaries?

2) In August 2001, Woodsen Inc. of Pittsburgh, PA considered the development of a large subsidiary in Greece. In response to the September 11, 2001 terrorist attack on the U.S., its expected cash flows and earnings from this acquisition were reduced only slightly. Yet, the firm decided to retract its offer because of an increase in its required rate of return on the project, which caused the NPV to be negative. Explain why the required rate of return on its project may have increased after the attack.

3) Packer, Inc., a U.S. producer of computer disks, plans to establish a subsidiary in Mexico in to penetrate the Mexican market. Packer’s executives believe that the Mexican peso’s value is relatively strong and will weaken against the dollar over time.  If their expectations about the peso value are correct, how will this affect the feasibility of the project?  Explain.

4) UVA Co. is a U.S.based MNC that obtains 40 percent of its foreign supplies from Thailand.  It also borrows Thailand’s currency (the baht) from Thai banks and converts the baht to dollars to support U.S. operations.  It currently receives about 10 percent of its revenue from Thai customers.  Its sales to Thai customers are denominated in baht.  Explain how UVA Co. can reduce its economic exposure to exchange rate fluctuations.

5) If the potential return is high enough, any degree of country risk can be tolerated.  Do you agree with this statement?  Why or why not? Do you think that a proper country risk analysis can replace a capital budgeting analysis of a project considered for a foreign country?  Explain.

Extra Credit: Can only be attempted is all 5 exam questions are answered. 2 pts. Possible.

If the Trump Administration does impose even more restrictions on Chinese imports as they claim they will, would the amount of DFI by China change at all and if so how?.

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