Question

Euromarket investment and fund raising A U.S.-based multinational company has two subsidiaries, one in Mexico (local currency, Mexican peso, MP) and one in Japan (local currency, yen, ). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent U.S. dollars): Mexico: $82 million excess cash to be invested (lent) Japan: $63 million funds to be raised (borrowed) The management gathered the following data: Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market; then indicate where the funds should be invested and raised. (Note: Assume that because of local regulations, a subsidiary is not permitted to use the domestic market of any other subsidiary.) The effective interest rate in the Euromarket for the US$ is %. (Round to two decimal places.) i Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) US $ Currency MP MP11.62/US$ -2.96% ¥108.34/US$ +1.54% Item Spot exchange rates Forecast percentage change Interest rates Nominal Euromarket Domestic Effective Euromarket Domestic 3.96% 3.76% 6.23% 5.92% 1.98% 2.19%

Answer 1

Date: Solutionie { » N = f Efective Interest Rate Nominal Interest Rate forecast Percentage Change N + f + (N*F) { = Now Erective Rates in Euro Market In MP {= ) =) N + f + (N*F) 623). + (-2.96%) + | 6:23%* (-2.962 3.27 % +60.18%) 3.08 % i In ² qu {= N + F + (N* F) = (1-98.).) + (1:54.) + (1.98% * 1:54) - 3.52% + 0.0304 % - 3.55%. Wow. Effective Rates in Domestic Market In MP , { = N + F + CN *F) 5.92% + (-2.967) + [ 5.98% * (-2.967.)] 2.96% - 0.175 2.78% - -

Page : Date : In * ę = ~ =) N + F + CN**) 2.19%. + 1.546. + (2.19 * 1.5407.) 3.76%. ..

Currency US$ 15 Item 16 Spot Exchange Rate 17 Forecast Period Change MP MP 11.60/US$ -3.00% Yen Yen 108.25 / USS 1.50% 28 19 Interest Rates 20 Nominal 21 Euro Market 22 Domestic 23 Effective 24 Euro Market 25 Domestic 3.96% 3.76% 6.23% 5.92% 1.98% 2.19% 3.96% 3.76% 3.08% 2.78% 3.55% 3.76%
now excess cash is invested in currency having highest effective rate

And for raising the fund cheapest source of fund is chosen