International Financial Management
Intro and Chapter 3 Questions

1)  If the Euro is trading at $1.12 / 1 EUR, how much would it cost to buy a widget from Germany for 60 Euros?

2)  If the Euro strengthened to $1.20 / 1 EUR, how much would the same 60 Euro widget cost?

3)  If the Euro weakened to $1.08 / 1 EUR, how much would the same 60 Euro widget cost?

4)  If you could buy a part from Canada for 100 Canadian dollars or buy a part in the US for $80, which supplier would you choose if the exchange rate is 1.30 CAD / 1 USD?

b)  If the Canadian exchange rate went to 1.20 CAD / 1USD, which supplier would you choose?

c)  IF the Canadian supplier wanted to keep you as a customer, what could he do in terms of price for the part if the US dollar weakened to 1.20 CAD / 1USD? What price in Canadian dollars would make you indifferent?

5)  If you were selling computer parts for $40 and you had a German competitor willing to sell them for 35 Euros. Assume you and the German company both have a relationship with a French company that wants to buy parts.

  1. If the Euro is trading at $1.12/1EUR, who is more likely to get the business (The German company or your US company)
  1. If the Euro is trading at $1.25/1EUR, who is more likely to get the business (The German company or your US company)

6)  You are planning a trip to Europe in 6 months and you expect to spend 1000 Euros for Food, Lodging and Entertainment. The Euro is currently trading at $1.15 / 1EUR. Do you want the US dollar to strengthen or weaken relative to the Euro over the next 6 months?

You are responsible for making both making purchases and sales at your company (ABC). ABC makes and sells specialty cutting tools for manufacturing plants. You recently wanted to engage in some international transactions, so you called your bank and they provided you with the following exchange rates for transactions in the $10,000 to $100,000 range.

Bid Ask

EUR/USD (means the number of US$ per Euro) = 1.4055 1.4235

GBP/USD (means the number of US$ per GBP) = 1.6025 1.6305

USD/JPY (means the number of JPY per US$) = 88.5245 91.2541

USD/CAD (means the number of CAD per US$) = 1.0345 1.0645

7)  You can buy parts this month from German supplier for 50,000 Euros or you can buy parts from a US supplier for $73,000.

  1. Which supplier is offering the better deal?
  1. What would have to happen to the Euro before you would switch suppliers?

8)  You can sell the tools you produced this month to a British manufacturer for 40,000 pounds or to a US manufacturer for $65,000.

  1. Which company would you prefer to sell the tools to?
  1. What would have to happen to the GBP before you would change your decision?

9)  You can buy parts this month from Japanese supplier for 5,000,000 JPY or you can buy parts from a US supplier for $58,000.

  1. Which supplier is offering the better deal?
  1. What would have to happen to the US$ before you would switch suppliers?

10)  You can sell the tools you produced this month to a Canadian manufacturer for 60,000 CAD or to a US manufacturer for $55,000.

  1. Which company would you prefer to sell the tools to?
  1. What would have to happen to the US$ before you would change your decision?

11)  You can buy parts this month from British supplier for 50,000 GBP or you can buy parts from a Canadian supplier for 88,000 CAD.

  1. Which supplier is offering the better deal?