Introduction to Finance

a. 
Determine the number of Australian dollars that can be pur-
chased with one U.S. dollar.
b. 
Determine the number of Hong Kong dollars that can be pur-
chased with one U.S. dollar.
c. 
In U.S. dollar terms, determine how many Hong Kong dollars 
can be purchased with one Australian dollar.
Furthermore, your suppliers require almost immediate payment to 
meet their own expenses of operations. How might the banking sys-
tems of the exporter and importer accommodate your situation?
5. 
As a speculator in the fi nancial markets you notice that for the last 
few minutes Swiss francs are being quoted in New York at a price of 
$0.5849 and in Frankfurt at $0.5851.
a. 
Assuming that you have access to international trading facilities, 
what action might you take?
b. 
What would be the eff ect of your actions and those of other spec-
ulators on these exchange rates?
6. 
You manage the cash for a large multinational industrial enterprise. 
As a result of credit sales on 90-day payment terms, you have a large 
claim against a customer in Mexico City. You have heard rumors of 
the possible devaluation of the Mexican peso. What actions, if any, 
can you take to protect your fi rm against the consequences of a pro-
spective devaluation?
7. 
Assume, as the loan offi
cer of a commercial bank, that one of your 
customers has asked for a commercial letter of credit to enable his 
fi rm to import a supply of well-known French wines. This customer 
has a long record of commercial success, yet has large outstanding 
debts to other creditors. In what way might you accommodate the 
customer and at the same time protect your bank?
8. 
For the entire year, the nation’s balance of trade with other nations 
has been in a substantial defi cit position, yet, as always, the overall 
balance of payments will be in “balance.” Describe the various 
factors that accomplish this overall balance, in spite of the defi cit in 
the balance of trade.
9. 
Assume you are the international vice president of a small U.S.-
based manufacturing corporation. You are trying to expand your 
business in several developing countries. You are also aware that 
some business practices are considered to be “acceptable” in these 
countries but not necessarily in the United States. How would you 
react to the following situations?
a. 
You met yesterday with a government offi
cial from one of the 
countries in which you would like to make sales. He said that he 
could speed up the process for acquiring the necessary licenses for 
conducting business in his country if you would pay him for his 
time and eff ort. What would you do?
b. 
You are trying to make a major sale of your fi rm’s products to 
the government of a foreign country. You have identifi ed the key 
decision maker. You are considering off ering the offi
cial a monet-
ary payment if she would recommend buying your fi rm’s products. 
What would you do?
c. 
Your fi rm has a local offi
ce in a developing country where you 
are trying to increase business opportunities. Representatives from 
a local crime syndicate have approached you and have off ered to 
provide “local security” in exchange for a monthly payment to 
them. What would you do? 

---

Problems