College Bowl

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College Bowl

• Round 4

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Question 1
As a producer of automobiles, you are currently
importing parts from Mexico. If you were to
expand sales of automobiles overseas, which
market should you choose (assuming that you can
generate the same sales in each market)
Great Britain Corr(GBP, MXP) .56 Japan
Corr(JPY, MXP) -.76 Canada Corr(CAD, MXP) 0
As the Mexican Peso appreciates (raising your
costs), the Pound Appreciates as well (raising
your revenues)
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Question 2
Your forecast of the percentage change in the
Australian Dollar has a point estimate of 0 and a
standard deviation of 2. If you have an
obligation to purchase AUD 10,000 worth of goods
from Australia, (AUS/USD .75), within what
range will your costs lie 95 of the time?
7,500 /- 4 7,200, 7,800
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Question 3
You are planning on exporting software to Europe.
You have estimated the demand curve for your
product and have found the price elasticity to be
2.5. Should you contract your sales to Europe in
dollars or Euro?
If you contract in dollars, changes in the
USD/EUR exchange rate will affect the Euro price
in Europe. With a high elasticity, Europeans are
very responsive to price changes. You should
price in Euro.
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Question 4
If the inflation rate is 2, what is your point
estimate for the change in the exchange rate?
Change in e .02 2(2) 4.5
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Question 5
If the inflation rate is 2, what is your 95
confidence interval?
4.5 /- 3.6 .9 , 8.1
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Question 6
Suppose that you have sales originating in Japan
(denominated in Yen). The Yen is currently
selling in forward markets at a 2 discount. If
you are risk neutral, should you lock in your
dollar revenues through the forward markets?
No. The regression above states that in the
past, whenever the yen is selling at a discount
(expected to depreciate), it actually ends up
appreciating in the spot market which would
raise the dollar value of your Japanese sales
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Question 7
You will need to purchase EUR 100,000 30 days
from now. You can hedge your risk by buying Euro
forward for 1.35 apiece. Currently, the Euro is
trading at 1.33 and you have forecasted to Euro
to appreciate by 2 against the dollar with a
standard error of 4. What would be the 95 VAR
of the hedge?
95 Confidence interval 2 /- 8 -6,
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1.25, 1.46
125,000 - 135,000 10,000
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Question 8
What's the difference between transaction
exposure and translation exposure?
Transaction exposure involves actual currency
conversions while translation only involves
potential currency conversions
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Question 9
Whats the difference between transaction
exposure and economic exposure?
Transaction exposure involves fixed cash flows
(currency price variability changes their dollar
value) while economic exposure involves variable
cash flows (currency price variability changes
the cash flows)
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Question 10
You are currently importing 100,000 worth of
goods from Mexico and 300,000 worth of goods
from Canada. You have the following information
Std. Dev. (MXP) 2 Std. Dev (CAD) 1 CORR(MXP,
CAD) -.6
What is the Std. Dev. Of your costs?
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Lightning Round 90s Trivia
1)Quantum Computer Services changed their name to
this more familiar brand in 1991.
America Online
2) At the 1992 MTV Rock the Vote special, Bill
Clinton was asked this infamous question.
Boxers or Briefs? He answered, Briefs
3)This movie, which premiered in 1996 was the
first to be released simultaneously on DVD and VHS
Space Jam Starring Michael Jordan and Bugs Bunny
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Lightning Round 90s Trivia
4)Ebay was founded in 1995 (it was originally
known as auctionweb.com ) This was the first
item sold.
A Broken Laser Pointer it sold for 14
5) Madonna appeared on the Late Show with David
Letterman in 1994 and did this. (A television
first )
Said the Fword 13 times!
6)In 1994, Michael Jackson kissed a girl in
public for the first time who was the girl?
Lisa Marie Presley his wife at the time.
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Lightning Round 90s Trivia
7)In 1995, this movie was released the first
movie made entirely with computer animation.
Toy Story
8) This company was formed in 1991 when IBM sold
off its printer division.
Lexmark
9)In 1992, this politician made a fool out of
himself on national TV by misspelling Potato
Dan Quayle
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Lightning Round 90s Trivia
10)In 1997, this team became the first wild card
to win the world series.
The Florida Marlins
11) This In 1991, this actress won her first
daytime Emmy she had previously been nominated
18 times
Susan Lucci
12)In 1995, this company changed its name to
Amazon.com
Cadabra.com