国际金融专业本科试题

1. a) Because The Total Profit=(Price-Cost of Production)×Quantity, therefore, for the US market, the Total Profit=(P-$500)×Q=(6000-2Q-$500)×Q=5500Q-2Q2. The derivative of this equation is 5500-4Q, let it be zero, then we can get Q=1375, the corresponding price and profit are $3250 $3781250. It means that when the price is $3250, then the company will supply 1375 units to the US market, and the operating profit will get the maximum value which is $3781250. For the Euro Market, the Total Profit=(P*-$400-$100)×Q*=(P*-$500)×(4700-3P*)=-3P*2+6200P*-2350000, the derivative of this equation is -6P*+6200, let it be zero, then we can get P*=1033.3, the corresponding Q* and total profit are 1600 and $853333. It means that when the price is $1033, the company will supply 1600 units to the Euro market and the operating profit will be $853333.

b) When the real exchange rate changes, the result of the US market will not be changed and the result of the Euro Area market should be recalculated as following:

Total Operating Profit==(P*-$400-$120)×Q*=(P*-$520)×(4700-3P*)=-3P*2+6260P*-2444000

The derivative of above equation is -6P*+6260, let it be zero, then we can get P*= 1043.3, the corresponding Q* and total profit are 1571 and $821633.

c) From the result of item a and item b, we can conclude that when the real exchange rate changes, the operating cash flow will change either. The higher the rate of euro up against the dollar is, the fewer the total operating profit is.

2. a) According to the material, the corrent spot exchange rate is $1.60/₤, then according to the change of inflation rate, the PPP for the each year is calculated as:

One pound=$1.60×(http://www.51due.net/writing/US inflation rate/ UK inflation rate)

Year US inflation UK inflation FX Expert Forecast Actual $/₤ PPP Expert Error PPP Error

1 3% 6% 1.8 1.65 0.80 0.15 -0.85

2 5% 2% 1.5 1.55 4.00 -0.05 2.45

3 3% 4% 1.7 1.66 1.20 0.04 -0.46

4 7% 5% 1.4 1.72 2.24 -0.32 0.52

5 6% 5% 1.6 1.70 1.92 -0.1 0.22

6 4% 6% 1.8 1.44 1.07 0.36 -0.37

7 3% 2% 1.5 1.56 2.40 -0.06 0.84

8 1% 3% 1.4 1.6 0.53 -0.2 -1.07

9 2% 4% 1.4 1.69 0.80 -0.29 -0.89

10 6% 4% 1.7 1.79 2.40 -0.09 0.61

b) According to above table, the FX Expert Forecast error and the PPP forcast error are listed in the table.

According to above equation, the RMSE of the FX Expert forecast is 0.20, the RMSE of the PPP forecast is 1.02. Thus the FX Expert forecast is better than the PPP forecast.

c) According to following figure and table, we can see that the PPP has a better direction signaling ability than the Expert forcast.

Correlations

Expert PPP Actual

Expert Pearson Correlation 1 -.176 -.155

Sig. (2-tailed) .628 .669

N 10 10 10

PPP Pearson Correlation -.176 1 .009

Sig. (2-tailed) .628 .980

N 10 10 10

Actual Pearson Correlation -.155 .009 1

Sig. (2-tailed) .669 .980

N 10 10 10

3. a) According to the given information, we konw that the initial investmen required is $100000 and the discount rate is 15%, then the company should invest $85000. We can see from the following table, the company can retain its initial invests until the third year. We think that the cycle is not too long and CRI can accept this project.

Year 1 Year 2 Year 3 Year 4

Sales Forcast(KGS) 5000000 6000000 8000000 7000000

Exchange rate 50 52 53 54

Operating costs(KGS) 2500000 3000000 4000000 3500000

Kyrgyz income tax(KGS) 625000 750000 1000000 875000

US income tax(KGS) 125000 150000 200000 175000

Profit(KGS) 1750000 2100000 2800000 2450000

Profit(USD) 35000 40385 52830 45370

Profit accumulation(USD) 35000 75385 128215 173585

b) The probability of 10% is not too high, but when the expropriation occurs, there is no compensation. For this project, only the longerterm operatioin can bring more profits. Thus we think that expropriatioin is very harmful for the stable development of the company. It’s not a good choice to settle this project unless the Kyrgyz government promise to make compensation in the contract.

c) According to the result of a, we can see that the maxium profit is about $52830 per year, the company can insure based on this value.

4. a) According to the alternative A, the upfront fee is 0.75%×$100000000=$750000, the total loan interest is 8%×98.75%×$100000000×5=$39500000.

According to the alternative B, the total loan interest is 9%×$100000000×5=$45000000, the issuing fee is not known yet.

The strong point of alternative A is the low total loan interest, but it needs the high upfront fee. The strong point of alternative B is the absence of upfront fee, however, it may need more total fees than alternative A. We think that if EMC has enough capital now, the alternative A is better than alternative B.

b) If the exchange rate can be fixed

At current condition($1.60/₤), $45000000 equals to 28125000 pounds, but if the exchange rate can be fixed at 1.55, then $45000000 equals to 29032258 pounds which is larger than 28125000. Thus we think that this method cannot help to improve the aternative B.

5. a) According to the material, the total loan of 100 million pound is as following:

100000000×(6%+1.25%)×98.75%=71593750 pound

According to the current exchage rate, it equals to 94503750 dollars.

After five years, it equals to 97367500, the AIC is 2863750 dollars.

b) The bid rate on USD is 6.10% and the ask rate is 6.5%, the difference is 0.4%. The bid rate on Euro is 7.5% and the ask rate is 7.8%, the difference is 0.3%. The AIC of the company’s net cash flow is 1.32×6.10%=8.052% if the company converts any extra Euro receipt at the quoted exchange rates.