TEST 2 FIN 542 International Financial Management 2012

ANSWER ALL
QUESTION 1
A multinational company in Malaysia needs RM1,000,000 short term inancin! or its
daily
operations" The #inancial Mana!er approaches May$an% &hich oers the company
the loan at '( interest &ith a 1)( compensatin! $alance re*uirement" At present
the company has RM+00,000 in its account &ith May$an%"
i) ,hat is the eecti-e interest rate on the loan i the interest is paid at maturity.
ii) ,hat is the eecti-e interest rate i the compensatin! $alance is no& at 10( and
the loan is on a discountin! $asis.
iii) I the company needs the ull RM1,000,000 loan or its operations, ho& much
must it actually $orro& i it does not ha-e any current $alance in the $an%, the
$an% is char!in! '( discountin! interest , 10( compensatin! $alance
re*uirement and RM+),000 administration char!es.
/10
mar%s0
QUESTION +
A Malaysian parent irm &ith a su$sidiary in 1ondon needs 2)00 million to inance an
e3pansion o its e3istin! plant or one year" It is considerin! inancin! options rom
home as &ell as a$road" The U4 $an% rate is )")( &hile Malaysian $an%s char!e at
the rate o 5"6(" The current e3chan!e rate is RM)"78+092 and this rate is e3pected
to mo-e to RM)"5'8092 in one year:s time" The ta3 rate is assumed to remain
constant at +;("
i0 <etermine the $eore ta3 rin!!it cost o $orro&in! pound in U4.
ii0 <etermine the ater ta3 rin!!it cost o $orro&in! rin!!it.
iii0 ,hich option should $e chosen and &hy.
i-0 =alculate the $rea%e-en e3chan!e rate $ased on the inormation pro-ided"
/+0 mar%s0
QUESTION 5
TEST 2 FIN 542 International Financial Management 2012
#iesto =o" has si!ned a contract to sell an aircrat to #ire #ly" #iesto =o" &ill $ill US<
)0 million paya$le in 80 days" The current spot e3chan!e rate is RM5"))009+09US<
and the 80 day or&ard rate is RM5"'5009109US<" The 80 day interest rate is )( per
annum in the United States and 7( per annum in Malaysia" #ire #ly is concerned
&ith the -olatile e3chan!e rate $et&een the dollar and the rin!!it" Thereore #ire #ly
&ould li%e to hed!e e3chan!e e3posure" Ad-ise #ire #ly &hether to use a or&ard
hed!e or a money mar%et hed!e" E3plain &hy you recommend that alternati-e"
/10 mar%s0
ANS,ER S=>EME TEST + /#IN)7+0
QUESTION 1
i0 EIR ? Amount o int paid
Usa$le unds
? '( 3 1,000,000
/1,000,000 @ 00
? '(
=A ? 1)( 3 1,000,0000
? 1)0,000
No deduction on =A since current $alance is RM+00,000, more
than =A re*uirement"
/7 mar%s0
ii0 =A ? 10( 3 1,000,0000
? 100,000
No deduction on =A since current $alance is RM+00,000, more
than =A re*uirement"
Int ? '( 3 1,000,0000
? '0,000
EIR ? Amount o int paid
Usa$le unds
? '( 3 1,000,000
/1,000,000 @ '0,000 B 00
? '"56(
/ 5 mar%s0
iii0 Total 1oan ? 1
Usa$le loan ? 1 @ 0"0'1 @ 0"11 @ +),000
1,000,000 ? 0"671 @ +),000
0"671 ? 1,0+),000
TEST 2 FIN 542 International Financial Management 2012
1 ? RM1,++0,+56
/5 mar%s0
/Total ? 10mar%s0
QUESTION +
i0 = ? e1 @ e0 9 e0
? )"5'80 @ )"78+0 9 )"78+0
? B0"0++7
/+ mar%s0

Aeore ta3 ? rc /1 C c0 C c
? )")( /1 @ 0"0++70 @ 0"0++7
? 5"17(
/5 mar%s0
ii0 Ater ta3 cost o $orro&in! home
=hc ? rhc /1 @ t0 C ct
? 5"6( /1 @ 0"+;0 @ /0"0++7 3 0"+;0
? 0"0+;;7 @ 0"00'076
? +"1;(
/7 mar%s0
iii0 Ater ta3 cost o $orro&in! a$road
=hc ? rc /1 C c0 /1 @ t0 C c
? )")( /1 @ 0"0++70 /1 B0"+;0 @ 0"0++7
? 1"'8(
/7 mar%s0
The Malaysian irm should choose to $orro& in 1ondon due to lo&er cost o
$orro&in!s"
/+ mar%s0
i-0 Area%e-en 9 Indierence
1 C Rh ? e1
1 C R e0
1 C 0"056? e1
1 C 0"0)) )"78+0
"e1 ? RM)"705) 9 2
TEST 2 FIN 542 International Financial Management 2012
/) mar%s0
/Total ? +0 mar%s0
QUESTION 5
#or&ard Mar%et >ed!e
US< )0,000,000 3 RM5"'510 ? RM161,))0,000
/+ mar%s0
Money Mar%et >ed!e /Account Daya$le0
Aorro& >= In-est #=
In-est #=E DF ? #F 9 1 C r
? )0,000,000
/1 C 0"0)970
? US<78,56+,;1'"0)
/5 mar%s0
Aorro& >=
US<78,56+,;1'"0) 3 RM5"))+0 ? RM1;),70;,70;"71
/+ mar%s0
Ater 80 days, pay $orro&in!s at 7(
TEST 2 FIN 542 International Financial Management 2012
RM1;),70;,70;"71 3 /1 C 0"07970 ? RM1;;,1'1,761")0
/+ mar%s0
=hoose money mar%et hed!e $ecause the cost is lo&er compared to or&ard mar%et
hed!e"
/1 mar%0
/Total ? 10 mar%s0