jaunebk

jaunebk

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jaune bokinLaurentian University of Sudbury

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Citrus Products Inc. is a medium-sized producer of citrus juice drinks with groves in Indian River County, Florida. Until now, the company has confined its operations and sales to the United States; but its CEO, George Gaynor, wants to expand into the Pacific Rim. The first step is to set up sales subsidiaries in Japan and Australia, then to set up a production plant in Japan, and finally to distribute the product throughout the Pacific Rim. The firm’s financial manager, Ruth Schmidt, is enthusiastic about the plan, but she worries about the implications of the foreign expansion on the firm’s financial management process. She has asked you, the firms most recently hired financial analyst, to develop a 1-hour tut0rial package that explains the basics of multinational financial management. The tut0rial will be presented at the next board of directors meeting. To get you started, Schmidt has given you the following list of questions.

a. What is a multinational corporation? Why do firms expand into other countries?

b. What are the five major factors that distinguish multinational financial management from financial management as practiced by a purely domestic firm?

c. Consider the following illustrative exchange rates:

U.S. Dollars Required to Buy One Unit of Foreign Currency

Japanese yen 0.009

Australian dollar 0.650

1. Are these currency prices direct quotations or indirect quotations?

2. Calculate the indirect quotations for yen and Australian dollars.

3. What is a cross rate? Calculate the two cross rates between yen and Australian dollars.

4. Assume that Citrus Products can produce a liter of orange juice and ship it to Japan for $1 75. If the firm wants a 50% markup on the product, what should the orange juice sell for in Japan?

5. Now assume that Citrus Products begins producing the same liter of orange juice in Japan. The product costs 250 yen to produce and ship to Australia, where it can be sold for 6 Australian dollars. What is the U.S. dollar profit on the sale?

6. What is exchange rate risk?

d. Briefly describe the current international monetary system. What are the different types of exchange rate systems?

e. What is the difference between spot rates and forward rates? When is the forward rate at a premium to the spot rate? When is it at a discount?

f. What is interest rate parity? Currently, you can exchange 1 yen for 0 0095 U.S. dollar in the 30-dayforward market, and the risk-free rate on 30-day securities is 4% in both Japan and the United States. Does interest rate parity hold? If not, which securities offer the highest expected return?

g. What is purchasing power parity (PPP)? If grapefruit juice costs $2 a liter in the United States and purchasing power parity holds, what should be the price of grapefruit juice in Australia?

h. What effect does relative inflation have on interest rates and exchange rates?

i. 1. Briefly explain the three major types of international credit markets.

2. Briefly explain how ADRs work.

j. What is the effect of multinational operations on capital budgeting decisions?

k. To what extent do average capital structures vary across different countries?

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As a finance officer at your company, you have been asked to conduct an analysis of the possible impact on your corporation of the new currency, the euro, which started circulating on January 1, 2002, in 12 of the 15 European Union member countries. International sales are important to the company and are expected to increase continuously in the future. The prospects for substantial growth from international sales will depend on the correct management of European markets and finances. (Although the euro started circulating on January 1, 2002, it was launched on January 1, 1999 and so euro-denominated bonds and equity already existed on January 1, 2002 and are increasing.)

1. Explain how an increase in the interest rate in Europe would affect the interest rate in the United States and the dollar-euro exchange rate under the theory of Interest Parity Condition. What factors does this theory leave out?

2. State the possible impact of the euro on the following:

a. The interest rates in various Euro-zone countries

b. The interest rate in the United States

c. The size of capital markets in Europe

d. The average size of banks in Europe

e. The number of banks in Europe

f. Foreign exchange revenues for banks

g. The strength of the dollar

h. Fiscal policy flexibility for euro-zone countries

i. Monetary policy flexibility for euro members

3. Explain why foreign exchange rates are important to your company. How would changes in the exchange rate between the euro and the dollar affect the sales and net profits of your company?

4. In the long run, will the creation of the euro boost your company's international business volume?

5. Your company plans to issue euro-denominated bonds. Will it matter whether you hire a Dutch bank or an Italian bank? Why or why not?

6. Use the dollar and interest rate figures in your text to explain the need to distinguish between real and nominal interest rates when predicting exchange rate movements.

7. Assume that today is January 1, U.S. $1.00 = .90 euros, and the interest rate on dollar deposits is 3%. If in one year:

a. the dollar appreciates relative to the euro by 10%, what will be the return on dollar deposits in terms of euros?

b. the dollar depreciates relative to the euro by 20%, what will be the return on dollar deposits in terms of euros?

c. the expected exchange rate is U.S. $1.00 = .95 euros, what is the expected rate of depreciation for the dollar?

d. the dollar is expected to appreciate 5%, what interest rate on euro deposits is required if the concepts of interest-rate parity and capital mobility are to hold?

Answer: UP

Debt Crisis
With the creation of the European Monetary System and the birth of the euro in 1999, the U.S dollar is facing challenges to its position as the key reserve currency in international financial transactions. However, for the euro to keep its international position as a reserve currency, the European Union must function as a cohesive political entity that can exert its influence on the world stage. There are numerous challenges facing euro-zone countries now, with debt crisis in several countries.
The euro, common currency among seventeen euro-zone countries is facing numerous challenges. Germany's finance minister said “his country is prepared to pursue bold action to preserve Europe's common currency, including deeper economic integration with its neighbors, and issued a warning to markets not to underestimate Berlin's resolve to protect the euro (Wall Street Journal, Dec. 11, 2010). Germany could accept steps toward fiscal union if current attempts to improve the euro zone's governance proved insufficient to end the year-old debt crisis. All European countries are determined to keep this European currency stable, so Europe will find steps toward further unification.
Many Germans, including leading members of the government, oppose further economic integration within the 17-nation euro zone over fears that Germany would be forced to pay the debt of others. Proponents of such steps warn that not only the euro but the EU itself could fall apart if governments fail to act. So far, Germany, the euro zone's economic motor, has vociferously opposed such proposals, sparking accusations from some of its neighbors that Berlin isn't acting in Europe's best interest. This is addressing fears that the debt crisis could spread from small countries such as Greece, Ireland, and Portugal to major economies such as Spain and Italy. It is argued that there will be no domino effect, as long as big economies like Germany defend the common currency.
Europe should concentrate on explaining to markets the decisions it has made so far, including the move to set up a European Stability Mechanism in 2013 that could impose losses on bond investors if euro members run up excessive debts.
Under the present structure, with unified monetary policy but not fiscal policy, different interest rates [on government bonds] are the mechanism that makes member states adhere to solid public finances. There is a need to improve the existing structure, and if this structure doesn't work, then they must indeed talk about alternatives.

1. Will increasing the size of the bailout fund (from which troubled countries can draw in times of crisis) help to prevent future crises? Why or why not? What is the downside of increasing this fund?

Answer: UP

Debt Crisis
With the creation of the European Monetary System and the birth of the euro in 1999, the U.S dollar is facing challenges to its position as the key reserve currency in international financial transactions. However, for the euro to keep its international position as a reserve currency, the European Union must function as a cohesive political entity that can exert its influence on the world stage. There are numerous challenges facing euro-zone countries now, with debt crisis in several countries.
The euro, common currency among seventeen euro-zone countries is facing numerous challenges. Germany's finance minister said “his country is prepared to pursue bold action to preserve Europe's common currency, including deeper economic integration with its neighbors, and issued a warning to markets not to underestimate Berlin's resolve to protect the euro (Wall Street Journal, Dec. 11, 2010). Germany could accept steps toward fiscal union if current attempts to improve the euro zone's governance proved insufficient to end the year-old debt crisis. All European countries are determined to keep this European currency stable, so Europe will find steps toward further unification.
Many Germans, including leading members of the government, oppose further economic integration within the 17-nation euro zone over fears that Germany would be forced to pay the debt of others. Proponents of such steps warn that not only the euro but the EU itself could fall apart if governments fail to act. So far, Germany, the euro zone's economic motor, has vociferously opposed such proposals, sparking accusations from some of its neighbors that Berlin isn't acting in Europe's best interest. This is addressing fears that the debt crisis could spread from small countries such as Greece, Ireland, and Portugal to major economies such as Spain and Italy. It is argued that there will be no domino effect, as long as big economies like Germany defend the common currency.
Europe should concentrate on explaining to markets the decisions it has made so far, including the move to set up a European Stability Mechanism in 2013 that could impose losses on bond investors if euro members run up excessive debts.
Under the present structure, with unified monetary policy but not fiscal policy, different interest rates [on government bonds] are the mechanism that makes member states adhere to solid public finances. There is a need to improve the existing structure, and if this structure doesn't work, then they must indeed talk about alternatives.

1.Germany seems to be the Euro-zone country that is leading the push toward greater fiscal integration as a means to greater financial stability. Why? What does Germany stand to gain by a fiscal union?

Answer: UP

Will someone check my answers please? I am copying and pasting the entire case study and my answers are below the numbered questions. Thanks in advance.

International Finance, Foreign exchange Market , European Monetary Union, Euro’s Challenge

CONCEPTS IN THIS CASE:

Euro Euro-zone countries

Debt Crisis

With the creation of the European Monetary System and the birth of the euro in 1999, the U.S dollar is facing challenges to its position as the key reserve currency in international financial transactions. However, for the euro to keep its international position as a reserve currency, the European Union must function as a cohesive political entity that can exert its influence on the world stage. There are numerous challenges facing euro-zone countries now, with debt crisis in several countries.

The euro, common currency among seventeen euro-zone countries is facing numerous challenges. Germany's finance minister said “his country is prepared to pursue bold action to preserve Europe's common currency, including deeper economic integration with its neighbors, and issued a warning to markets not to underestimate Berlin's resolve to protect the euro (Wall Street Journal, Dec. 11, 2010). Germany could accept steps toward fiscal union if current attempts to improve the euro zone's governance proved insufficient to end the year-old debt crisis. All European countries are determined to keep this European currency stable, so Europe will find steps toward further unification.

Many Germans, including leading members of the government, oppose further economic integration within the 17-nation euro zone over fears that Germany would be forced to pay the debt of others. Proponents of such steps warn that not only the euro but the EU itself could fall apart if governments fail to act. So far, Germany, the euro zone's economic motor, has vociferously opposed such proposals, sparking accusations from some of its neighbors that Berlin isn't acting in Europe's best interest. This is addressing fears that the debt crisis could spread from small countries such as Greece, Ireland, and Portugal to major economies such as Spain and Italy. It is argued that there will be no domino effect, as long as big economies like Germany defend the common currency.

Europe should concentrate on explaining to markets the decisions it has made so far, including the move to set up a European Stability Mechanism in 2013 that could impose losses on bond investors if euro members run up excessive debts.

Under the present structure, with unified monetary policy but not fiscal policy, different interest rates [on government bonds] are the mechanism that makes member states adhere to solid public finances. There is a need to improve the existing structure, and if this structure doesn't work, then they must indeed talk about alternatives.

1. Which countries are currently in the Euro zone? Of these countries, which are currently experiencing government debt problems?

Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain are in the Euro zone. France, Belgium, Cypress, Ireland, Greece, Italy, Portugal, Spain are facing debt problems (Kirk 2015)

(Kirk 2015)

2. How would, for example, Portugal defaulting on its bond payments impact the other countries in the Euro-zone? What would happen to interest rates? What would be the possibility of debt crises in other Euro-zone countries? How would this impact economic growth in the Euro-zone?

Investors will often restructure debt and lower the original value of the bond. The country is impacted because defaulting can cause runs on banks. Because of this threat, governments will often impose capital controls and may even shut down banks. The countries credit rating is lowered which means the inability to get credit or higher borrowing rates ("What happens when a country goes bust").

A debt crisis is more likely in countries that are considered emerging markets, like Spain and Greece. Countries like England or Germany will be impacted to a lesser extent by a debt crisis. Regardless of the size of the country, a debt crisis has a severe impact on the all euro zone countries. This has been recently apartment with the economic crisis in Greece.

3. Will increasing the size of the bailout fund (from which troubled countries can draw in times of crisis) help to prevent future crises? Why or why not? What is the downside of increasing this fund?

Increasing the bailout fund will not prevent future crisis. Future crisis can be prevented with good government monetary policy. The downside of increase the increasing the bailout fund is that this action will not encourage governments to make decisions that will balance their budget, like reducing expenditures and raising taxes. Countries will continue to overextend themselves because there is no downside to default since they can count on a bail out.

4. Germany seems to be the Euro-zone country that is leading the push toward greater fiscal integration as a means to greater financial stability. Why? What does Germany stand to gain by a fiscal union?

Germany is an established economy and has not experienced the effects of a financial crisis in the same way that countries like Greece and Spain have. A fiscal Union will provide strength to the weaker countries leading to a more stable Euro which benefits Germany.

Answer: UP
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Let's take a look at our food supply: the foods we buy, eat, and store in our cupboards and refrigerators.

Did you ever wonder, where our food is coming from? How far a food item might travel before it ends up on our plates? How does the distance that food travels affect its taste? How does the time delay between harvest and end-consumption affect the food's nutrient composition? How do harvest conditions, our food storage at home and preparation methods affect the quality and safety of our meals?

Since this discussion deals with two topics (chapter 14 and chapter 15), please chose one (#1 or #2) depending on your personal interest:

1. Please visit one of the following web sites, watch one or two of their videos (combined video length should be at least 25 minutes), and then summarize what you learned from the Food Safety videos listed below (make sure to give us the video title and web site where you accessed it), and tell us about anything noteworthy in your opinion that was not already mentioned in our text book, and how the video will influence your future 'food handling techniques'.

a) Visit the FIGHT BAC! Partnership for Food Safety Education web site at http://www.fightbac.org/free-resources/videos/ , and watch one of the following videos (60-90min in length):

What Lies Beneath: The Science Behind Contamination
9/2/15 Webinar: Home Food Safety Myths and Facts
7/16/2015 Webinar: Consumer Refrigeration Practices and Spreading the CHILL
Opening Session of the Consumer Food Safety Education Conference 2014
Consumer Food Safety Education Conference Session: Call to Action
Consumer Food Safety Education Conference Session: Meaningful Messengers
Consumer Food Safety Education Conference Session: Champions for Consumers
Alternatively, you may also chose any other video on the BAC web site as long as it is over 25 min in length (make sure to tell us the video title when you present your summary to our class discussion).

Or

b) Watch the youtube 6th Ed. ServSafe Manager Training Video (1 - 6) available athttps://www.youtube.com/watch?v=Y5ldu1zQxzs (60min in length)

Or

c) Watch the youtube videos Food Safety at Home available atFood Safety at Home (19min) AND the youtube video Dirty Little Secrets - Kitchen Food Safety available atDirty Little Secrets - Kitchen Food Safety (8min in length) OR the youtube video Foodborne Illness: What Problem? available atFoodborne Illness: What Problem? (11min in length)


2. Please watch the following PBS-video 'E2 transport — Food Miles', which reflects on the environmental impacts of America's current food system. In the 21st century global food economy, most foods travel an average of 1,500 miles from farm to plate. As author Michael Pollan elaborates on the impacts of this fossil fuel-driven system are detrimental to the environment, but also to our health and social well-being. Writer Michael Shuman argues that investing in local food systems lessens the distance between who we are and what we eat and creates wealth in the community. You can view the video through this link e2 - Food Miles-SD.mp4 or https://vimeo.com/46492156.

Here are the discussion questions for 2. , which are a mix of scientific and socioeconomic inquiries; depending on your interest, please chose one of the following questions:

1) Have you ever heard of urban gardening? What is it? And what are your thoughts now after reflecting on the video and urban gardening: what will you do with this new insight? Would you like to do it ?

2) Think about a typical dinner that you eat. What foods does it include? Do you know where that food comes from (before it ends up in the supermarket)? Where it is grown? Using what methods? Where it is processed, if it is processed? And what are your thoughts now after reflecting on the above: what will you do with this new insight?

3) What is the main difference between fossil fuel-based agriculture and solar-based agriculture? What are the benefits and drawbacks of each type? You can make a pro and con list if you’d like. And what are your thoughts now after reflecting on the above: what will you do with this new insight?

4) When did fossil fuel-based agriculture emerge? Why did it emerge at that time? Name two specific reasons. And what are your thoughts now after reflecting on the video and the above: what will you do with this new insight?

5) What are some of the environmental benefits of buying food from local organic farmers? What are some of the drawbacks? And what are your thoughts now after reflecting on the video and the above: what will you do with this new insight?

6) In the video, when Michael Pollan describes why our current food system is unsustainable, he states that there are “internal contradictions that will lead to breakdowns.” What does he mean? Can you think of what those internal contradictions might be? And what are your thoughts now after reflecting on the video and the above: what will you do with this new insight?

7) In the video Ann Karlen from the Fair Food Project talks about what the word 'fair' means to her. List three points that she makes about being fair. What do you think are 'fair' practices when it comes to food? Fair to whom or what? The animals, the consumers, the farmers, the environment? Make your own list of what you think are fair and unfair practices. What will you do now regarding your food selection based on this new insight?

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