Problem 4:
If the $: Yen spot rate is $ 1 = Yen 130 and interest rates in Tokyo and New York
are 4 and 5 percent respectively, what is the expected dollar yen exchange rate
one year hence?Activity for Group B
Problem 5
The US inflation rate is expected to average about 3 percent annually, while the
Indian rate of inflation is expected to average about 8 percent annually. If the
current spot rate for the rupee is $0.0312, what is the expected spot rate in two
years?Problem 6
- What types of exchange exposures is a multinational enterprise subjected to?
- What is transaction exposure? How is it calculated?
- What different methods are used to calculate transaction exposure?
- An enterprise buys and sells only in the local market. Can it remain
indifferent to exchange rate variations of local currency? - Explain with suitable examples the technique of bilateral and multilateral
netting. - What do you know about the technique of ‘Leads and Lags’?
- How can indexation clauses in contracts be used to reduce the exchange risk?
- What are the advantages of a reinvoicing centre?
- Write a note on the use of swaps in exchange risk hedging?
- Discuss what strategy can be used to reduce transaction exposure?
Problem 7
An Indian exporting firm, Nadakari and Bros, would like to cover itself against a
likely depreciation of pound sterling. The following data is given:Receivables of Nadakari and Bros: $ 400,000
Spot rate: Rs.61.00/--
Payment date: 4 months
4 months interest rate: India: 11 percent per annum
UK: 4 percent per annum
What should the exporter do?