2 papers finance

Anonymous
timer Asked: Jan 21st, 2016

Question description

Each paper is 2 to 3 pages not counting the ref page.  need introduction


Question 1

DGP Inc. sells 100,000 Gizmos to a retailer in Europe for €100,000 (Euros) on terms of 30 Days from the date of Invoice. The current rate of the EUR/USD is 1.3868, therefore DGP Inc books the sale as an accounts receivable of US$138,680.

Instructions

  1. Define and discuss the concept of Currency Exposure Risk, Translation Exposure, and Economic Exposure. 
  2. If the exchange rate of EUR/USD was 1.2868 in 30 days, what would be the impact on the company’s Profit and Loss at the time of the receipt of payment from the European customer? What would be the Economic exposure for the company? What would be the Translation Exposure if any? Include calculations.
  3. What would be the impact on the firm if the exchange rate was EUR/USD 1.4868 in 30 days? Discuss in relation to the three currency exposures in 2. Include calculations.
  4. How could DGP Inc. eliminate or reduce these exposure risks? Provide two hypothetical examples to support your answer. 

Question 2

DGP Inc is planning an expansion of its business operations internationally by adding a subsidiary (FDI) in Spain. The CFO has approached three investment banks, 2 in the USA and 1 in Europe, to provide the firm with financial information regarding the cost of capital in their respective markets, and also in major capital markets globally.

Instructions:

  1. Explain what is meant by global sourcing of capital.
  2. Explain what is meant by the terms Systematic risk, Unsystematic risk, and Beta as related to Investment in shares of public organizations. 
  3. According to Eiteman, Stonehill, and Moffett (2010) “Depository receipts (depository shares) are negotiable certificates issued by a bank to represent the underlying shares of stock, which are held in trust at a foreign custodian bank” (p. 393) Define and contrast American Depository Receipts (ADRs,) and Global Depository Receipts (GDRs).
  4. What is meant by the term “Cross-Listing?”
  5. What is the difference between “Eurodollars” an “Euronotes?”

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