Introduction to Finance

(LO 6.7)
Discuss the meaning of the fi nancial account and 
identify its major components.
Exercises
1. 
You are the owner of a business that has offi
ces and production 
facilities in several foreign countries. Your product is sold in all 
these countries, and you maintain bank accounts in the cities in 
which you have offi
ces. At present, you have short-term notes out-
standing at most of the banks with which you maintain deposits. 
This borrowing is to support seasonal production activity. One of 
the countries in which you have offi
ces is now strongly rumored to 
be on the point of devaluation, or lowering, of its currency relative 
to that of the rest of the world. What actions might this rumor cause 
you to take?
2. 
Explain the concept of “balance” as it relates to a nation’s balance 
of payments.
3. 
As an exporter of relatively expensive electronic equipment you 
have a substantial investment in the merchandise that you ship. Your 
foreign importers are typically small or medium-size fi rms without a 
long history of operations. Although your terms of sales require pay-
ment upon receipt of the merchandise, you are concerned about the 
possible problem of nonpayment and the need to reclaim merchand-
ise that you have shipped. How might the banking system assist and 
protect you in this situation?
4. 
As an importer of merchandise you depend on the sale of the mer-
chandise for funds to make payment. Although customary terms of 
sale are 90 days for this type of merchandise, you are not well-known 
to foreign suppliers because of your recent entry into business. 

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C H A PT E R 6 International Finance and Trade
Problems
1. 
Exchange rate relationships between the U.S. dollar and the 
euro have been quite volatile. When the euro began trading at the 
beginning of 1999, it was valued at 1.17 U.S. dollars. By late-
2000, a euro was worth only $.83 and peaked at $1.60 in mid-
2008. Calculate the percentage changes in the value of a euro from 
its initial value to its late-2000 value and to its high mid-2008 
value. 
2. 
Over a two-year period, the U.S. dollar equivalent of a euro 
increased from $1.3310 to $1.4116. Using the indirect quotation 
method, determine the currency per U.S. dollar for each of these dates.
3. 
Over a two-year period, the U.S. dollar equivalent of a euro 
increased from $1.3310 to $1.4116. Determine the percentage change 
of the euro between these two dates.
4. 
A few years ago, the U.S. dollar equivalent of a foreign currency 
was $1.2167. Today, the U.S. dollar equivalent of a foreign currency 
is $1.3310. Using the indirect quotation method, determine the cur-
rency per U.S. dollar for each of these dates.
5. 
A few years ago the U.S. dollar equivalent of a foreign currency 
was $1.2167. Today, the U.S. dollar equivalent of a foreign currency 
is $1.3310. Determine the percentage change of the foreign currency 
between these two dates.