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MC9902C02 Lecture : The Metal Ages

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mahimaajith0204
21 Nov 2022
School
Mahatma Gandhi University
Department
Finance
Course
MC9902C02
Professor

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Document Summary

The time of the third, the second, and the first centuries bce was a period of uncommon change in europe. This has generally been characterized as the metal ages, which might be additionally separated into stages, of surmised dates as displayed: the bronze age (2300-700. Bce) and the iron age (700-1 bce), which followed a less unmistakably characterized copper age (c. 3200-2300 bce). As of now, social orders in europe started deliberately to deliver metals. Concurrent with these mechanical developments were changes in settlement association, custom life, and the collaboration between the various social orders in europe. These turns of events and their exceptional appearance in the material culture cause the period to show up as a progression of emotional changes. Neighborhood advancements were for quite some time remembered to have been brought about by impacts from the eastern mediterranean and the center east and by movements.

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Related Questions

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Navarro’s Intra-Company Hedging. Navarro was a US based multinational company that manufactured and distributed specialty materials for soundproofing construction. It had recently established a new European subsidiary in Barcelona, Spain and was now in the process of establishing operating rules for transactions between the US parent company and the Barcelona subsidiary. Ignacio Lopez was International Treasurer for Navarro, and was leading the effort at establishing commercial policies for the new subsidiary. Navarro’s first shipment of product to Spain was upcoming. The first shipment would carry an intra-company invoice amount of $500,000. The company was now trying to decide whether to invoice the Spanish subsidiary in US dollars or European euros, and in turn, whether the resulting transaction exposure should be hedged. Ignacio’s idea was to take a recent historical period of exchange rate quotes and movements and simulate the invoicing and hedging alternatives available to Navarro to try to characterize the choices. Ignacio looked at the 90 day period that had ended the previous Friday (standard intra-company payment terms for transcontinental transactions was 90 days). The quarter had opened with a spot rate of $1.0640/Euro, with the 90 day forward rate quoted at $1.0615/Euro the same day. The quarter had closed with a spot rate of $1.0980/Euro.

Which unit would have suffered the gain (loss) on currency exchange if intra-company sales were invoiced in US dollars ($) assuming both completely unhedged and fully hedged?

Which unit would have suffered the gain (loss) on currency exchange if intracompany sales were invoiced in euros assuming both completely unhedged and fully hedged?

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?