International finance

  1. Why do we expect the agency costs of multinational corporations to be generally higher than domestic corporations?

(5 points)

 

  1. Explain when and why each of the following international agencies was established. If the agency’s mission now is different from its original mission, please state the original and the current mission. There is no need to explain the history behind the change. You may use your book or other resources for an answer to this question.
    1. International  Bank for Reconstruction and Development
    2. Multilateral Investment Guarantee Agency
    3. International Development Association
    4. Bank for International Settlements
    5. International Financial Corporation

(15 points â€“ 3 points for each)

  1. Explain whether and why the following actions will increase or decrease the BOP balance if all else remains the same.
    1. Government imposes higher tariffs
    2. Home currency depreciates
    3. Inflation in host country increases
    4. Government lifts the quotas imposed on imports
    5. Interest rates in home currency increases

(15 points â€“ 3 points for each)

 

 

  1. Complete the following table using the information provided: 

Currency

Cross Exchange Rates

 

 

USD

CNY

CHF

GBP

EUR

JPY

INR

USD

1

 

 

 

 

 

 

CAD

0.90113

1

 

 

 

 

 

AUD

0.90352

 

1

 

 

 

 

GBP

1.62636

 

 

1

 

 

 

EUR

1.29612

 

 

 

1

 

 

JPY

0.00931

 

 

 

 

1

 

INR

0.01638

 

 

 

 

 

1

(Note: For Cross exchange rates, keep in mind that rate is quoted in terms of the currency on the left. So the first row in this table would be USD/USD, CNY/USD, MXP/USD, GBP/USD etc.)

(15 points â€“ 0.5 point for each box)

4. Assume that all rates calculated in the table above are ask rates. 

(a) If the bid-ask spread for CAD is 4 pips, what is the bid price for CAD in the US? Express your answer in direct as well as indirect terms.  (5 points)

(b) If the bid-ask spread for GBP is 0.12%, how many USD will you receive if you exchanged 100,000 GBP.

(5 points)

 

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