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Chapter 19 Hw

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Chapter 19 Question
Question 19.1
U.S corporations build manufacturing plants in other countries for various reasons-
-Labor is typically cheaper in other countries, especially third world/developing countries.
-Expanding their market to other countries, not just the United States. If a firm decides to
manufacture their goods in another country they could also start selling them abroad.
-Close proximity to raw materials. A manufacturer may choose to build a plant in a certain
region because the raw materials needed are close by.
-Loose governmental regulations. In some countries, especially in the developing world, the
regulations put in place by the government may be much more relaxed than rules in the
States.
Question 19.2
If the euro depreciates against the U.S. dollar, a dollar can buy more euros as a result.
As a currency depreciates against the U.S. dollar the currency becomes in a sense "cheaper"
because inflation is lowering the purchasing power of that currency. If inflation causes the
euro to depreciate against the U.S. dollar, then one can buy more euros with that dollar.
Question 19.3
Typically, if the US has a trade deficit (more imports than exports) with a particular
country, then the value of dollar should depreciate with respect to other country's currency
because the foreigners are selling dollars to convert money back to their home currency. As
the value of dollar depreciates, the assets in the US appears to be cheaper to foreigners in
their local currencies, hence the foreign investments in the US should increase over time.
Question 19.4
Most likely yes, as foreign projects usually have a higher risk associated with it. Because
of a higher risk, higher return should be provided as a means of equalizing the inherent
liability that the project holder maintains. Since home based projects are also easier to
manage and control in all respects, including legally, they run a lower rate of failure over
foreign projects run on similar conditions, as the company has less control over the culture,
laws, resources, and other intangibles that occur there.

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INJUSTICE ON MINORITY COMMUNITIES BY POLICE
2
Chapter 19 Problems
Problem 19.1
$1.30 = 1 Pound
Calculation of the Dollar sells for in pound per dollar
$1 = 1/1.30 Pound
= 0.77 Pound
Problem 19.2
Given $1 = 3.58 Shekels = 109 Yen
Calculation of the cross =-exchange rate between the yen and the Shekel
1 Shekel = 109/3.58
= 30.45 Yen/Shekel
Problem 19.3
Spot Rate = $0.0091
Risk Free rate for Price currency = 2%
Risk Free rate for base currency = 1.25%
Calculation of the 6-month forward exchange rate
Forward Rate = Spot Rate * (1+Risk Free rate for Price currency/1+ Risk Free rate for base
currency)
= 0.0091*(1+2%/2)/(1+1.25%/2)
=0.0091*(1+0.01)/(1+0.00625)
= 0.0091* (1.0037)
= 0.00913 is the 6-month forward exchange rate
Problem 19.4
Given $750 = 637.5 euros

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Chapter 19 Question Question 19.1 U.S corporations build manufacturing plants in other countries for various reasons-Labor is typically cheaper in other countries, especially third world/developing countries. -Expanding their market to other countries, not just the United States. If a firm decides to manufacture their goods in another country they could also start selling them abroad. -Close proximity to raw materials. A manufacturer may choose to build a plant in a certain region because the raw materials needed are close by. -Loose governmental regulations. In some countries, especially in the developing world, the regulations put in place by the government may be much more relaxed than rules in the States. Question 19.2 If the euro depreciates against the U.S. dollar, a dollar can buy more euros as a result. As a currency depreciates against the U.S. dollar the currency becomes in a s ...
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