International Financial management

Question 1
High capital mobility is driving the emerging markets nations to choose between free-floating regimes and currency board or dollarisation regimes.
As the consultant of the company, you are asked for your expertise in the following tasks:
1. Critically evaluate the main outcomes of each of these regimes from the perspective of the emerging market.
2. Present a case study by comparing two (comparable) emerging economies during previous 10 years, one with free-floating regime and another with its currency pegged to the dollar. With your
findings, critically evaluate and analyze any potential impact of the currency regimes had on levels of current account surplus/deficit, FDI and other relevant indicators.
3. Evaluate how any potential current account deficits were financed and assess what was the larger impact on the economy (Use real macroeconomic data and relevant research). [LOs 1 and 2] [50
Marks]
Question 2
Critically review and analyse the reasons behind the increase in LIBOR rates in comparison to the Treasury yields in 2007 and 2008. You should also discuss how the LIBOR rates could be brought down
to more stable levels. (Hint: Support your answer with relevant time-series graphs and citation from academic and practitioner articles.) [LOs 2 and 3] [25 Marks]
Question 3
Mauna Loa, a macadamia nut subsidiary of Hershey’s with plantations on the slopes of its namesake volcano in Hilo, Hawaii, exports Macadamia nuts worldwide. The Japanese market is its biggest
export market, with average annual sales invoiced in yen to Japanese customers of ¥1,200,000,000. At the present exchange rate of ¥125/$ this is equivalent to $9,600,000. Sales are relatively
equally distributed during the year, they show up as a ¥250,000,000 account receivable on Mauna Loa’s balance sheet. Credit terms to each customer allow for 60 days before payment is due. Monthly
cash collections are typically ¥100,000,000.
Mauna Loa would like to hedge its yen receipts, but it has too many customers and transactions to make it practical to sell each receivable forward. It does not want to use options because they are
considered to be too expensive for this particular purpose. Therefore, they have decided to use a “matching” hedge by borrowing yen.
1. a) Critically evaluate the borrowing options for Mauna Loa in short term and long term.
[20 Marks]
2. b) What should be the terms of payment on the yen loan? [5 Marks]