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I was so stuck on this question! I used the higher exchange rates for the payments, lower ones for the receipts, and chose the 3 or 6 month forward rates depending on the timings of transactions. Didn’t get any of the 4 choices though, so just guessed in the end.
in section A there was a question with the impact of raising interest rates on the company’s project. so, i selected the option saying that demand will reduce as consumers choose cheaper import goods. is it true?
how did you calculate the convertibles? did you also find the conversion value to be $100.998 -i mean, number of shares * MV of shares* growth rate (if i remember right, it was 6% every year)
so, overall, 20*$4*1.06^4=100.998
was the number of years 4?Yup 100.98. 7% growth rate ,5yrs of time, 12 ordinary shares and share price was 6. So (1.07^5)*6*12
What was the answer for 1st question which says the source of finance not likely available to SME?
A curiosity is that often, with smaller businesses, longer-term loans are easier to
obtain that medium term loans because the longer loans are easily secured with
mortgages against property. The fact that medium term loans are hard to obtain
is a well-known feature of SMEs and is known as the maturity gap. Its main
problem arises in a mismatching of assets and liabilities.
this statement is obtained from Kaplan. based on the information here, it can be concluded that short and medium finance is hard to obtain for SME.There was a question in section A about spot rate, the currencies were FR and DOLLAR. I got An answer of 25.44. But second part of the question asked did the dollar strenthen or weaken ? What was the answer?
weaken, cos as far as i remember, the previous exchange rate was higher than rate, meaning that dollar decreased in value
by the way, did you also get the answer choice $113.6 to the question with repayment after 18 month?
The 18 months question was for purchase parity it said to calculate spot rate which i got as 9.85 as far as i remember
The 113.6 was for market value of loan note i guess. But i got 113.6 in some question i dont exactly remember
i thought answer A: transaction risk results from expected changes in exchange rates
choice B: Economic risk is the long-term version of transaction risk. i did not know whether it was truefor repayment after 18 month, the spot rate was 10.01 to $1. inflation in two countries : 8% and 3.5% for 12 months, then another rate was: 14% (but we take half of it -7% cos we should find the six month rate), and 3%.(six month rate – 1.5%). so, what i did was to find the spot rate for the first year: 10.01 * 1.08/1.035=10.4452
spot rate for the next six month: 10.4452 * 1.07/1.015=11.011
givent that loan amount was 1250 pesos, the result will be : 1250/11.011=$113.5
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