...on a wholesale basis. Since the wholesale transactions were denominated entirely in dollars, the yen/dollar exchange rate fluctuations had little impact on Tiffany’s cash flows. This risk was completely borne by Mitsukoshi as yen/dollar rate fluctuated in the time between the purchasing of inventory and cash settlement So Tiffany was not exposed to Exchange rate fluctuation risk at all Risks after the agreement Under the new arrangement Tiffany assumed management responsibilities in 29 Tiffany & Co boutique stores previously operated by Mitsukoshi. This would mean Tiffany would have to hold inventory in Japan, managing and funding local advertising programs and controlling local Japanese management. These would have to manage in Yen retail prices. Thus volatility in Yen/dollar will have direct bearing on the cash flows of Tiffany. Yen-Dollar Exchange rate movement From exhibit it is shown that yen is strengthening against dollar. In January 1993 the cost of 1 dollar was 124.73. It moved to 106.50 in June. Thant means in the period of just 6 months 14.61 %. Thus the yen denominated cash flows of Tiffany will increase if it keeps on strengthening and moves into the same direction. However there are some market insights that yen might eventually become overvalued and crash suddenly, just as US dollar did in 1985. From exhibit 7 it can be said that yen was overvalued against dollar in 1993. Size of exposure of Tiffany Sales of Mitsukoshi as wholesale purchases...
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...Tiffany & Co. Facing Exchange Rate Risks Following Tiffany & Co. Japan’s new retailing agreement with Mitsukoshi Ltd. in July 1993, TiffanyJapan was now faced with both new opportunities and risks. With greater control over retail sales in its Japanese operations, Tiffany looked forward to long-run improvement in its performance in Japan despite continuing weak local economic conditions. However, Tiffany was now also faced with risks of exchange rate fluctuations between time of purchase from Tiffany and time of cash settlement that were previously borne by Mitsukoshi. Historical data warned Tiffany that the yen/dollar exchange rate could be quite volatile on a year-to-year and even month-to-month basis. Although a continued strengthening of the yen against the dollar was observed from 1983 to 1993, there was evidence that the yen was overvalued against the dollar in 1993, and thus a distinct probability that the yen may eventually crash suddenly. Managing Tiffany’s yen-dollar exchange rate risk. The predicted depreciation of the yen would have a potentially negative impact on Tiffany’s financial results. There are three main types of foreign exchange exposures are (1) transaction (short-term), (2) economic (medium to long term) and (3) translation exposures. For a company like Tiffany which has sales in numerous countries, there are a continuing series of foreign currency receivables and payables. Thus, Tiffany should have a foreign currency hedging program to cover...
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... Buy Case Now OTHER USERS If you would like to read the full document, click on “Buy Case Now” to be redirected to the Darden Business Publishing Web site where you can purchase this and other Darden cases. If you have any questions or need technical help, please contact Darden Business Publishing at 1-800-246-3367 or email sales@dardenbusinesspublishing.com Document Id 0000-1402-5981-000059FA The protectedpdf technology is © Copyright 2006 Vitrium Systems Inc. All Rights Reserved. Patents Pending. UVA-F-1222 DIVA SHOES, INC. In April 1995, Lisa Stone ended a conversation with Benjamin Bisno, the president and chief executive officer of Diva Shoes, Inc., concerning his firm’s growing exchange rate exposure. Since joining the foreign exchange desk at Merrill Lynch three years ago, Stone had worked with Bisno in executing relatively simple “forex” transactions for the company. She provided information and advice on the firm’s decision to increase purchases of materials from Italian suppliers and to...
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...are widely utilised in modern countries. In turn exchange rate is playing an increasing significant role in current economy activities. As far as we know exchange rate is very variable and volatile therefore if we cannot have knowledge of the effects of exchange rate on international transactions, it would potentially result in huge lost because of the fluctuations in exchange rate. In this report we are going to discuss 4 basic theories affecting exchange rate that includes: international monetary systems, the balance of payments, exchange rate determinations and international arbitrage. And we will concentrate on the underlying concept and characteristics of each theory and apply them in real world by comparing currency pair actual historical movements, in this report, we specific focus on USD/JPY. The objective of this report is to learn and apply those 4 basic theories and get a clear understanding of how exactly they would affect exchange rate. Finally we will draw conclusions based upon our researches, historical data, and some specific articles in real world. 2. Discussions 2.1 International Monetary System The International Monetary System is the framework of rules, regulations and conventions that govern the financial relations among countries. Such a system is necessary to define a common standard of value for the international currencies. In here, we will mainly discuss the exchange movement of United State Dollar against Chinese Yuan and how it was affected by...
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... MBA (Finance) Programme N1DM28 International Finance Discussion and analysis of the movement in the value of US dollar against the Japanese Yen from 2002 to 2011 Kala Premarani Perumal Student ID: UNIMKL 010085 COPY 1 Executive Summary This paper is undertaken to discuss and analyse the exchange rate movements in the value of US dollar (USD) against the Japanese Yen (JPY) from 2002 to 2011. We could evaluate based on the exchange rates, that as an overall the JPY has appreciated against USD during this phase. The JPY had appreciated by 57% over these years (average 2002: ¥125.31/$ to average 2011: ¥79.72/$). The paper identifies the significant influence of the movement and concludes how the future trend would be. The details incorporated in this paper was obtained from business magazines, electronic sources, conference papers and journals relating to the foreign exchange, economy and international trade between these countries. Table of Contents Executive Summary ii 1. Introduction 1 2. Period 1-January 2002 – January 2005 a) Economic Climate 2 b) Current Account Balance 3 c) BOJ Intervention 5 3. Period 2-February 2005 – June 2007 a) Monetary Setting - Interest Rate in United States of America 6 b) Carry Trade 7 c) Oil Costs ...
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...c.|product cycle theory.| d.|none of the above.| ____ 2. A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees. a.|true.| b.|false.| ____ 3. Which of the following is not a provision or result of the Single European Act of 1987? a.|increased regulatory uniformity among European countries.| b.|the phasing in of a common currency for all European countries by 1992.| c.|the removal of many taxes on goods traded between European countries.| d.|firms' ability to achieve economies of scale.| e.|all of the above.| ____ 4. Which of the following is not mentioned in the text as an additional risk resulting from international business? a.|exchange rate fluctuations.| b.|political risk.| c.|interest rate risk.| d.|exposure to foreign economies.| ____ 5. Due to the larger opportunity set of funding sources around the world from which an MNC can choose, an MNC may be able to obtain capital at a lower cost than a purely domestic firm. a.|true.| b.|false.| ____ 6. Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time. a.|true.| b.|false.| ____ 7. If the home currency begins to appreciate against other currencies, this should ____________ the current account balance, other things equal (assume that substitutes are readily...
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...Introduction to Exchange Rates and the Foreign Exchange Market 2 Per $ 1.225 1.084 5.238 0.703 7.750 48.160 94.860 13.220 7.460 0.609 1.000 1. Refer to the exchange rates given in the following table. Today June 25, 2010 Country Australia Canada Denmark Euro Hong Kong India Japan Mexico Sweden United Kingdom United States Per $ 1.152 1.037 6.036 0.811 7.779 46.360 89.350 12.697 7.740 0.667 1.000 Per £ 1.721 1.559 9.045 1.215 11.643 69.476 134.048 18.993 11.632 1.000 1.496 Per € 1.417 1.283 7.443 1.000 9.583 57.179 110.308 15.631 9.577 0.822 1.232 One Year Ago June 25, 2009 Source: U.S. Federal Reserve Board of Governors, H.10 release: Foreign Exchange Rates. a. Compute the U.S. dollar–yen exchange rate, E$/¥, and the U.S. dollar–Canadian dollar exchange rate, E$/C$, on June 25, 2010, and June 25, 2009 Answer: June 25, 2009: E$/¥ = 1 / (94.86) = $0.0105/¥ June 25, 2010: E$/¥ = 1 / (89.35) = $0.0112/¥ June 25, 2009: E$/C$ = 1 / (1.084) = $0.9225/C$ June 25, 2010: E$/C$ = 1 / (1.037) = $0.9643/C$ b. What happened to the value of the U.S. dollar relative to the Japanese yen and Canadian dollar between June 25, 2009 and June 25, 2010? Compute the percentage change in the value of the U.S. dollar relative to each currency using the U.S. dollar–foreign currency exchange rates you computed in (a). Answer: Between June 25, 2009 and 2010, both the Canadian dollar and the Japanese yen appreciated relative to the U.S. dollar. The percentage appreciation in the foreign currency...
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...Chapter 3 International Financial Markets Lecture Outline Motives for Using International Financial Markets Motives for Investing in Foreign Markets Motives for Providing Credit in Foreign Markets Motives for Borrowing in Foreign Markets Foreign Exchange Market History of Foreign Exchange Foreign Exchange Transactions Interpreting Foreign Exchange Quotations Currency Futures and Options Markets International Money Market Origins and Development Standardizing Global Bank Regulations International Credit Market Syndicated Loans International Bond Market Eurobond Market Development of Other Bond Markets Comparing Interest Rates Among Currencies International Stock Markets Issuance of Foreign Stock in the U.S. Issuance of Stock in Foreign Markets Comparison of International Financial Markets How Financial Markets Affect an MNC’s Value Chapter Theme This chapter identifies and discusses the various international financial markets used by MNCs. These markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in foreign markets, and borrowing in foreign markets. Topics to Stimulate Class Discussion 1. Why do international financial markets exist? 2. How do banks serve international financial markets? 3. Which international financial markets are most important to a firm that consistently needs short-term funds? What about a firm that needs long-term funds? Critical debate Should firms that...
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...Abstract Like any other form of business or enterprise, investing internationally is a risk that can be turned into opportunity once well managed. There is a veritable sea of benefits in international portfolio investment. These include participation in the growth of other countries, hedging against exchange rate exposure to risk, diversification benefits and advantages (abnormal returns) of market segmentation on a global scale. However, we cannot be so overwhelmed by the payoff of international portfolio investment as to overlook the bitter side of it. In an international environment, financial investments are not only subject to currency risk and political risk, but also to many institutional constraints and barriers. What are crucial in international portfolio investment are optimal portfolio allocation and the associated market and currency risks. Diversification into multiple securities can practically eliminate potential severe losses from any individual security. However, domestic diversification cannot remove systematic market risk due to high correlations among most domestic securities. Since market risk differs from country to country, international diversification can reduce substantially the overall risk exposure of investment portfolios. Introduction and Overview Increased global competition and opportunity have attracted many national economies and individual domestic businesses to the international markets. In recent...
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...its payment obligations. For example, a host government or sovereign power may unilaterally repudiate its foreign obligations or many prevent local firms from honouring their foreign obligations. Sovereign risk reflects potential adverse effects resulting from a country’s political conditions. In other words, sovereign risk reflects the possibility that political conditions could prevent the counterparty in a swap agreement from meeting its payment obligations. Various political conditions could prevent the counterparty from meeting its obligation in the swap agreement. For example, the local government might take over the counterparty and then decide not to meet its payment obligations. Alternatively, the government might impose foreign exchange controls that prohibit the counterparty from making its payments. Sovereign risk differs from credit risk because it is dependent on the financial status of the government rather than the counterparty itself. A counterparty could have very low credit risk but conceivably be perceived as having high sovereign risk because of its government. It does not have control over some restrictions that are imposed by its government. Comment on the most common indicator of sovereign risk with current examples. Spain's Government Bond Yield for 10 Year Notes rallied 58 basis points during the last 30 days which means it became more expensive for Spain to borrow money from investors. During the last 12 months, Spain government bond yield advanced...
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...Globalization and China’s Economic and Financial Development (Preliminary draft– not to be quoted 9/8/05) Gregory C. Chow To understand China’s economic reform and development since 1978 one may conveniently divide the topic into its domestic and international aspects even though the two are closely related. It is the purpose of this essay to examine the international aspects as China has taken part in the process of world economic globalization, a salient feature of world history today. The Chinese leader Deng Xiaoping who initiated and directed economic reform from a planned to a market economy understood the importance of globalization and adopted what he called an “open-door policy” as an essential part of the reform program. The term globalization refers to the crossing of national boundaries. It means the flow of goods, capital, information/technology and people across national borders. China practiced globalization in the Han dynasty (206BC-220AD) when trade took place between the Han Chinese and neighboring people in the North-west through the Silk Route. During the Tang dynasty (618-901) trade flourished and the Silk Route expanded as Chinese traded with the Romans. However, in the Qing Dynasty and in the period of the PRC up to Deng Xiaoping’s open-door policy China tried to close its doors and resisted globalization. I will survey the accomplishments of globalization for China’s...
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...Instructor: Dr. Blaise Roncagli Before attempting this assignment, be sure to read the handout “Exchange Rate Concepts Study Guide” which your instructor has made available to you on the Blackboard course shell for this class. This handout describes some concepts and notation that will be essential to this assignment. You should also download the document “ISO 4217 Currency Codes from XE” from the Blackboard shell to use as a reference to the three-character currency codes used throughout this assignment. To obtain data on current and historical exchange rates, go to www.xe.com . To create an historical chart of exchange rate movement over time, go to www.xe.com, select ToolsCurrency Charts, pick your “from” currency (usually USD), your “to” currency, and your time frame under the “View” drop down, then press GO to produce your chart. Note the use of “currency pairs” notation below as described in the Exchange Rate Concepts Study Guide. Be sure you understand that notation or you will not answer the questions below correctly. Problem 1-1 a) Go to www.xe.com to produce an exchange rate chart for US dollars per British Pound (GBP/USD) for the past 1 year. Answer the following questions from that graph. Express your answers in direct format, to at least 4 decimal places. What was the GBP/USD exchange rate on 2 July 2014? What was the GBP/USD exchange rate on 26 November 2014? Did the GBP appreciate or depreciate during that period, and by what percentage...
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...at which the market is prepared to sell a specific currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs. At Best - An instruction given to a broker to buy or sell at the best rate that can be obtained. At or Better - An order to deal at a specific rate or better. B Balance of Trade - The value of a country's exports minus its imports. Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar. Base Currency - The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215 In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar. Bear Market - A market distinguished by declining prices. Bid Price -...
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...-21 (revised) OFFICE OF INDUSTRIES WORKING PAPER U.S. INTERNATIONAL TRADE COMMISSION How Do Exchange Rates Affect Import Prices? Recent Economic Literature and Data Analysis Cathy L. Jabara Office of Industries U.S. International Trade Commission Revised, October 2009 Cathy Jabara is a Senior Economist with the Office of Industries of the U.S. International Trade Commission. Office of Industries working papers are the result of the ongoing professional research of USITC Staff and are solely meant to represent the opinions and professional research of individual authors. These papers are not meant to represent in any way the views of the U.S. International Trade Commission or any of its individual Commissioners. Working papers are circulated to promote the active exchange of ideas between USITC Staff and recognized experts outside the USITC, and to promote professional development of Office staff by encouraging outside professional critique of staff research. This paper is a revised version of Working Paper No. 21 dated May 2009. The paper has been updated to include 4 lags in the exchange rate estimation, instead of 3, and a new equation for Latin America is included. JEL codes: F10, F12 Key words: Exchange rates, pass-through, U.S. imports Address correspondence to: Office of Industries U.S. International Trade Commission Washington, DC 20436 How Do Exchange Rates Affect Import Prices? Recent Economic Literature and Data Analysis Cathy L. Jabara U.S. International...
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...Triennial Central Bank Survey Foreign exchange and derivatives market activity in April 2010 Preliminary results Monetary and Economic Department September 2010 Queries concerning this report should be addressed to the authors listed below: Sections I + II: Karsten von Kleist tel +41 61 280 8408 tel +41 61 280 8256 tel +41 61 280 8445 tel +41 61 280 8425 e-mail: karsten.von-kleist@bis.org e-mail: carlos.mallo@bis.org e-mail: serge.grouchko@bis.org e-mail: philippe.mesny@bis.org Sections III + IV: Carlos Mallo Section III: Section IV: Serge Grouchko Philippe Mesny Copies of publications are available from: Bank for International Settlements Communications CH-4002 Basel, Switzerland E-mail: publications@bis.org Fax: +41 61 280 9100 and +41 61 280 8100 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2010. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1814-7348 (print) ISBN 92-9131-840-X (print) ISSN 1814-7356 (online) ISBN 92-9197-840-X (online) Contents Summary of the April 2010 Triennial Central Bank Survey ......................................................1 I. II. Background on the Triennial Central Bank Survey..........................................................2 Results of the triennial survey .........................................................................................3 1. Global foreign exchange market turnover .................
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