Writing Homework Help

In completing this assignment, follow the writing guidelines on p. 7 of the syllabus.

For each of the following two foreign exchange scenarios, one an international purchase and the other an international sale

a) show the value of the transaction today in US$

b) provide an example exchange rate for a potential depreciation of the US$ and show the effect of this depreciated US$ on the value of the transaction in US$

c) provide an example exchange rate for a potential appreciation of the US$ and show the effect of this appreciated US$ on the value of the transaction in US$

d) determine the effect of a forward contract on the value of the transaction in US$

e) determine the effect of asset-liability hedging on the value of the transaction in US$

f) make a recommendation of whether the company should use a forward contract or asset-liability hedging in order to protect itself from foreign exchange risk

SCENARIO 1

Tough Appliances in the United States has just made a major purchase of sheet steel from Good-Enough Steel of China. Tough Appliances will pay Good-Enough Steel 80,000,000 China Yuan (CY) in 6-months. Tough Appliances has experienced losses in the past on such purchases because of movements in the foreign exchange rate between the CY and the US$. The current exchange rate is US$0.1594/CY and a 6-month forward contract is US$0.1582/CY. The annual current deposit rate in Chinais 1.5% and the annual prime lending rate is 4.35%. Tough Appliance‘s cost of capital is 7.50% per annum.

SCENARIO 2

Tough Appliances in the United States has just sold Israel Shekel (ILS) 2,500,000 of its appliances to Save-Money Outlets of Tel Aviv, Israel. Tough Appliances will receive the payment for this sale in 3-months and would like to guard itself against movements in the foreign exchange rate between the US$ and the ILS. The current exchange rate is US$0.2861/ILS and a 3-month forward contract is US$0.2879/ILS. The annual current deposit rate in Israel is 0.525% and the annual prime lending rate is 0.1%. Tough Appliance‘s cost of capital is 7.50% per annum.

PLEASE! Follow the format bellow by doing the assignment that I posted.

DATE:

TO : Professor

FROM: Your Name

RE : Title of Assignment

3. Double-spaced;

4. If more than one page, stapled in upper-left corner with PAGE NUMBERS ON EVERY PAGE; do not put page numbers in the upper-left corner; in Microsoft Word, go to the Insert menu to select the Page Number function;do not submit any assignment in a folder, binder, or envelope, simply staple it in the upper left-hand corner;

5. Organized using headings and subheadings. FOR ANY ASSIGNMENT OR CASES,DO NOT SIMPLY USE THE NUMBER FOR A QUESTION; DEVELOP A HEADING OR SUBHEADING FOR EACH QUESTION OR TOPIC IN THE ASSIGNMENT.