After all foreign and U.S. taxes, a U.S. corporation expects to receive 2 pounds of dividends per share from a British subsidiary this year. The exchange rate at the end of the year is expected to be $1.53 per pound, and the pound is expected to depreciate 5% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 10% a year indefinitely. The parent U.S. corporation owns 10 million shares of the subsidiary. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 11% for the subsidiary.

You are the vice president of Worldwide InfoXchange, headquartered in Minneapolis, Minnesota. All shareholders of the firm live in the United States. Earlier this month you obtained a loan of 10 million Canadian dollars from a bank in Toronto to finance the construction of a new plant in Montreal. At the time the loan was received, the exchange rate was $0.81 to the Canadian dollar. By the end of the month, it has unexpectedly dropped to$0.75. Has your company made a gain or a loss as a result, and by how much?

Assume that interest rate parity holds and that 90-day risk-free securities yield a nominal annual rate of 3% in the United States and a nominal annual rate of 3.5% in the United Kingdom. In the spot market, 1 pound=$1 53. a. What is the 90-day forward rate? b. Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?

Suppose that 1 Danish krone could be purchased in the foreign exchange market today for $0.15. If the krone appreciated 4% tomorrow against the dollar, how many krones would a dollar buy tomorrow?

Early in June 1983, it took 245 Japanese yen to equal $1. In June 2015, that exchange rate had fallen to 124 yen to$1. Assume that the price of a Japanese-manufactured automobile was $9,000 in June 1983 and that its price changes were in direct relation to exchange rates. a. Has the price, in dollars, of the automobile increased or decreased during the 32-year period because of changes in the exchange rate? b. What would the dollar price of the automobile be in June 2015, again assuming that the car’s price changes only with exchange rates?

Early in June 1983, it took 245 Japanese yen to equal $1. In August 2017, that exchange rate had fallen to 109 yen to$1. Assume that the price of a Japanese-manufactured automobile was $9,000 in June 1983 and that its price changes were in direct relation to exchange rates.

a. Has the price, in dollars, of the automobile increased or decreased during the 34-year period because of changes in the exchange rate?

b. What would the dollar price of the automobile be in August 2017, again assuming that the car’s price changes only with exchange rates?

Arvin Australian Imports has agreed to purchase 15,000 cases of Australian wine for 4 million Australian dollars at today’s spot rate. The firm’s financial manager, Sarah Vintnor, has noted the following current spot and forward rates:

$$\begin{matrix} \text{ } & \text{U.S. Dollar/ Australian Dollar} & \text{Australian Dollar/ U.S. Dollar}\\ \text{Spot} & \text{0.7644} & \text{1.3082}\\ \text{30-day forward} & \text{0.7632} & \text{1.3103}\\ \text{90-day forward} & \text{0.7606} & \text{1.3148}\\ \text{180-day forward} & \text{0.7571} & \text{1.3209}\\ \end{matrix}$$

On the same day, Vintnor agrees to purchase 15,000 more cases of wine in 3 months at the same price of 4 million Australian dollars. a. What is the price of the wine in U.S. dollars if it is purchased at today’s spot rate? b. What is the cost in U.S. dollars of the second 15,000 cases if payment is made in 90 days and the spot rate at that time equals today’s 90-day forward rate? c. If the exchange rate for the Australian dollar is 1.25 to $1 in 90 days, how much will Vintnor have to pay for the wine (in U.S. dollars)?

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine’s financial planners are considering undertaking a 1-year project in the United States. The project’s expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of$2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%. Currently, 1 U.S. dollar will buy 0.94 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? b. What is the expected forward exchange rate 1 year from now? c. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine?

An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. A 6-year security with no maturity, default, or liquidity risk has a yield of 20.84%. If the real risk-free rate is 6%, what average rate of inflation is expected in this country over the next 6 years?

Sullivan’s Island Company started operating a subsidiary in a foreign country on January 1, 2020, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2021. The subsidiary then purchased for 200,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, 2020, the subsidiary rented the building for three years to a group of local attorneys for 8,000 pounds per month. By year-end, rent payments totaling 80,000 pounds had been received, and 16,000 pounds was in accounts receivable. On October 1, 2020, 4,000 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 12,000 pounds back to Sullivan’s Island Company on December 31, 2020. The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow:

Prepare a statement of cash flows in pounds for Sullivan’s Island Company’s foreign subsidiary, and then translate this statement into U.S. dollars.

Suppose the exchange rate between the U.S. dollar and the Swedish krona was 8 52 krona=$1, and the exchange rate between the dollar and the British pound was$£ 1=$1.53$. What would be the exchange rate between Swedish kronas and pounds?

A currency trader observes that in the spot exchange market, 1 U.S. dollar can be exchanged for 3.87 Israeli shekels or for 124 Japanese yen. What is the cross-exchange rate between the yen and the shekel; that is, how many yen would you receive for every shekel exchanged?

If British pounds sell for $1.53 (U.S.) per pound, what should dollars sell for in pounds per dollar?

Three nested hollow spheres have the same center. The innermost sphere has a radius of 2 cm and carries a uniformly distributed charge of $6 \mathrm{nC}\left(1 \mathrm{nC}=1 \times 10^{-9} \mathrm{C}\right).$ The middle sphere has a radius of 5 cm and carries a uniformly distributed charge of -4 nC. The outermost sphere has a radius of 10 cm and carries a uniformly distributed charge of 8 nC. What is the magnitude of the electric field at a distance of 1 cm from the center?