What scenarios are consistent with the U.S. dollar’s depreciation? Nissan produces a car that sells in Japan for ¥1.8 million. On September 1, the beginning of the model year, the exchange rate is ¥150:$1. Consequently, Nissan sets the U.S. sticker price at $12,000. By October 1, the exchange rate has dropped to ¥125:$1. Nissan is […]
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That is, is it likely that JAL’s losses on its forward contracts were offset by currency gains on its operations? In 1985, Japan Airlines (JAL) bought $3 billion of foreign exchange contracts at ¥180/$1 over 11 years to hedge its purchases of U.S. aircraft. By 1994, with the yen at about ¥100/$1, JAL had incurred
Did JAL’s forward contracts constitute an economic hedge? In 1985, Japan Airlines (JAL) bought $3 billion of foreign exchange contracts at ¥180/$1 over 11 years to hedge its purchases of U.S. aircraft. By 1994, with the yen at about ¥100/$1, JAL had incurred over $1 billion in cumulative foreign exchange losses on that deal. a.
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What was the likely economic rationale behind JAL’s hedges? In 1985, Japan Airlines (JAL) bought $3 billion of foreign exchange contracts at ¥180/$1 over 11 years to hedge its purchases of U.S. aircraft. By 1994, with the yen at about ¥100/$1, JAL had incurred over $1 billion in cumulative foreign exchange losses on that deal.
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What might have been the purpose of GE’s publicly announced cutback? In 1990, General Electric acquired Tungsram Ltd., a Hungarian lightbulb manufacturer. Hungary’s inflation rate was 28% in 1990 and 35% in 1991, while the forint (Hungary’s currency) was devalued 5% and 15%, respectively, during those years. Corresponding inflation for the United States was 6.1%
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What happened to the competitiveness of GE’s Hungarian operations during 1990 and 1991? In 1990, General Electric acquired Tungsram Ltd., a Hungarian lightbulb manufacturer. Hungary’s inflation rate was 28% in 1990 and 35% in 1991, while the forint (Hungary’s currency) was devalued 5% and 15%, respectively, during those years. Corresponding inflation for the United States
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What foreign exchange risk would such a dollar loan face? Mucho Macho is the leading beer in Patagonia, with a 65% share of the market. Because of trade barriers, it faces essentially no import competition. Exports account for less than 2% of sales. Although some of its raw material is bought overseas, the large majority
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what would be your likely response to Mucho Macho’s dollar loan request? Mucho Macho is the leading beer in Patagonia, with a 65% share of the market. Because of trade barriers, it faces essentially no import competition. Exports account for less than 2% of sales. Although some of its raw material is bought overseas, the
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Have dollar-equivalent profits gone up or down? Mucho Macho is the leading beer in Patagonia, with a 65% share of the market. Because of trade barriers, it faces essentially no import competition. Exports account for less than 2% of sales. Although some of its raw material is bought overseas, the large majority of the value
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Based on your answer to Part a, what has been the likely effect of the change in the peso’s real value on Mucho Macho’s peso profits converted into dollars? Mucho Macho is the leading beer in Patagonia, with a 65% share of the market. Because of trade barriers, it faces essentially no import competition. Exports