Question

1/ As the assistant to the Chief Financial Oce for Volkswagen, you've been tasked with managing their

international operations so as to facilitate the coordination of their manufacturing networks. More speci-

cally, you've be presented with the following scenarios and asked to present a 'transnational solution' with

cash currently on hand. As such, you are considering exchanging Swiss Francs (CHF) for Japanese Yen

(JPY). At the bank you see the following.

CHF/USD 1.6933

USD/JPY: 115.44

_What is the JPY/CHF exchange rate?

_What is the CHF/JPY exchange rate?

_If the CHF appreciates by 10%; what would the new JPY/CHF rate be?

_If the JPY lost 25% of its quoted value against the CHF, what would the new JPY/CHF rate be?

2/

On behalf of CFO Homan, complete the following table, indicating, which currency has appreciated

(denoted 'A") and which currency has depreciated (denoted 'B').

NOTE: You have been given a mixture of direct and indirect quotes

DATE EXCHANGE RATE CURRENCY TO CONSIDER APPRECIATED (A) DEPRECIATED D) 4/24/2005 0.91130 EUR USD EUR 4/28/2005 0.90630 EUR/USD 6/17/2005 23.2 BHT USD BHT 1/13/2006 55.8 BHT USD 4/25/2005 1.6430 CHF/USD CHF 4/26/2006 0.6140 USD CHF 6/26/2004 0.0008324 USD/KRW KRW 2/18/2005 0.0008286 USD/KRW 1/30/2006 1.0038 ARS/USD USD 2/5/2006 1.00050 USD ARS

3/

Volkswagen is considering production diversication and thus considering the acquisition of an electrical

components plant. The potential plants are located in Egypt, Indonesia, Taiwan, Vietnam and the USA.

To better understand the acquisition cost, complete the following cross-rates. Label answers as follows:

1A, 1B, 2A, 2B etc.

4/

Volkswagen may ultimately choose a plant outside of the ones listed in Question 6, opting for the country

Forinta - where the local currency is the forints. The projected investment and returns are as follows:

What would be their total total investment (in dollars)?

Once the plant is up and running, what would the annual percentage return on investment?

If the forint is devalued by 25 percent., what would the new exchange rate be?

Answer 1

1)

Attaching the formulas and values obtained :-

14 Particulars CHF/USD USD/JPY Hence, CHF/JPY Exchange Rate 1.6933 115.44 195.47 JPY/CHF Exchange Rate 0.0051 If CHF appreciates by 10%, new CHF/JPY exchange rate Hence, new JPY/CHF exchange rate 215.02 0.0047 If JPY lost 25% of its quoted value against the CHF, new JPY/CHF rate 0.0038

Particulars CHF / USD USD/JPY Hence, CHF / JPY Exchange Rate 1.6933 115.44 =C3*C4 JPY/CHF Exchange Rate =1/05 If CHF appreciates by 10%, new CHF/JPY exchange rate Hence, new JPY/CHF exchange rate =C5*1.1 =1/09 If JPY lost 25% of its quoted value against the CHF, new JPY/CHF rate =C7*(1-0.25) 13

Particulars CHF / USD USD/JPY Hence, CHF / JPY Exchange Rate 1.6933 115.44 =C3*C4 JPY/CHF Exchange Rate =1/05 If CHF appreciates by 10%, new CHF/JPY exchange rate Hence, new JPY/CHF exchange rate =C5*1.1 =1/09 If JPY lost 25% of its quoted value against the CHF, new JPY/CHF rate =C7*(1-0.25) 13