Global Energy Management Institute International Financial Risk Management R.J. Reynolds International Financing HBS Case 9-287-057 The case is set in the context of RJR’s 1985 financing of its $4.9 billion acquisition of Nabisco Brands Inc. To finance the acquisition‚ RJR was proposing the issue of $1.2 billion of 12 year notes and the same amount in preferred stock. It had already funded $1.5 billion of the acquisition leaving $1 billion more to finance. Challenges facing RJR: Of the
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to others will be associated with a fall in the first nation’s exchange rate and with a rise of its interest rate relative to foreign interest rates. The two conditions combined result in the _________ Effect. a) Fisher b) Herstatt c) Unbiased forward rate d) International Fisher Ans: d Section: The fisher effect Level: Easy MEDIUM (applied) 4.5 Suppose annual inflation rates in the U.S. and Mexico are expected to be 6% and 80%‚ respectively‚ over the next several years. If the current
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I chose to present the method I believe would be most successful for CWTI. 1.) Risk of fluctuation in foreign exchange rates –USD receivables Mitigate using control method ie. forward contracts‚ hedging etc. 2.) Risk of fluctuation in interest rates – USD loan Mitigate using control method ie. forward contracts‚ hedging etc. 3.) Risk of supply shortage/delay due to truck breakdowns Mitigate using diversification ie. Have alternative options of transportation readily available 4.) Risk
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Japanese yen (THB 4‚405‚286.34 × Y2.69) = 11‚850‚220.25 c) Convert the Japanese yen into dollars (Y11‚850‚220.26 × $0.0085) = 100‚726.87 d) Dollar profit ($100‚726.87 – $100‚000) = 726.87 3. Ben Holt has obtained several forward contract quotations for
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on production‚ consumption and inventories‚ and for clear reporting of oil reserves”‚ while reaffirming the need to promote greater energy efficiency. 2 The benchmark crude-oil contract had reached yet another record high in New York at US$75.35 a barrel on April 21st 2006. With prices forecast to top US$80 in the near future‚ higher volatility in the yen–dollar exchange rate was expected [see Exhibit 1]. On that same Monday‚ Teruhide Osawa‚ president of OSG Corporation (“OSG”)‚ was following the foreign
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Ch. 5 | Balance of Payments and International Economic Linkages Balance of payments - accounting statement of the international transactions of one nation over a specific period of time (transactions between US residents and residents of all other countries during that year). Divided in different components: Current Account - purchases and sales of goods and services Financial Account - capital transactions Reserves Account - changes in official reserves Debit entry - purchase of domestic
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justifications for why Ruhnau should continue his chairmanship of Lufthansa. By using a partial forward cover‚ Herr Heinz acted to mitigate risk from further DM depreciation while also taking advantage of DM appreciation should it occur as he expected. The DM did appreciate from 3.2DM/$ to 2.3DM/$. The total cost to Lufthansa dropped from DM1.6 billion to DM1.375M‚ a savings of DM225 million‚ by using the partial forward cover. However given the significant volatility in DM/$ rate‚ the put option method would
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WELCOME SPEECH By Anjani Sinha‚ MD & CEO‚ National Spot Exchange I welcome Shri B.C.Khtua‚ IAS‚ Hon’ble Chief Guest‚ who has agreed to be the Chief Guest of Pulses Meet -2008. Mr. Khatua has been instrumental in effectively regulating the commodity derivatives market in the country and also in providing regulatory support to the derivatives market‚ which has helped growth of this market. I welcome Dr. S.K. Goel‚ Principal Secretary‚ Agriculture & Co operation‚ Government of Maharashtra‚
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at a rate of 40% for all its cash flow in excess of $300. The value of the firm is the expected discounted value of its cash flow less the expected discounted value of bankruptcy costs and taxes that it pays. The firm can hedge by buying/selling forward contracts on gold. Start by assuming that bankruptcy costs are zero. (a) Find the value of the unhedged unlevered firm. (10 points) Answer: 1 · [350 − 0.5 · 0.4 · (500 − 300)] = 295.238. Value of firm = 1.05 (b) Find the value of the hedged unlevered firm
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POINT/COUNTER-POINT Should MNCs Use Forward Rates to Estimate Dollar Cash Flows of Foreign Projects? POINT: Yes. An MNC’s parent should use the forward rate for each year in which it will receive net cash flows in a foreign currency. The forward rate is market-determined and serves as a useful forecast for future years. COUNTER-POINT: No. An MNC should use its own forecasts for each year in which it will receive net cash flows in a foreign currency. If the forward rates for future
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