尉将发影大孝 国际财务管理 微型案例 depreciate substantially over the next month,but he also believes that the pound could appreciate substantially if specific situations occur.Should Jim use currency futures or currency options to hedge the exchange rate risk?Is there any disadvantage of selecting this method for hedging? 5.Impact of Russian Inflation on Exchange Rates The opening of Russia's market has encouraged many U.S.firms to consider capitalizing on various opportunities there.However,this opening has resulted in numerous problems for McDonalds,IBM,and other U.S.firms operating in Russia.Specifically,the value of the Russian currency (the ruble)has been very volatile.In fact,it declined by 15 percent on a single day.One of the main reasons for persistent weakness in the ruble is Russia's inflation. The inflation rate in Russian has commonly exceeded 20 percent per month.Russian interest rates commonly exceed 150 percent,but this is far less than the annual inflation rate in Russia, which is estimated to be 8000 percent. 1.Explain why the Russian inflation of about 800 percent was placing severe pressure on the value of the Russian ruble. 2.Does the effect of Russian inflation on the decline of the ruble's value support the theory of purchasing power parity (PPP)?How might the relationship be distorted by political conditions in Russia? 3.Does it appear that the prices of Russian goods will be equal to the prices of U.S.goods from the perspective of Russian consumers (after considering exchange rates)?Explain. 4.Given the 800 percent inflation and the decline in the ruble,will the effects offset each other for U.S.importers?That is,how will U.S.importer of Russian goods be affected by the conditions? 6.Dow Chemical's Exchange Rate Exposure Since 1992,when the bands surrounding the exchange rate between European currencies were widened,U.S.-based MNCs with European subsidiaries that sell to various European countries became more exposed to exchange rate risk.The bands were 2.5 percent in either direction from a specified exchange rate between two European currencies before 1992;in 1992,the exchange rate mechanism(ERM)in Europe was adjusted to allow for a 15 percent band in either direction.Dow Chemical Co.was one of many U.S.firms that had European subsidiaries whose cash flows were affected.Consider how a German subsidiary of Dow Chemical is affected if it accepted the European currency of choice by each European customer that imported products from that subsidiary.The German subsidiary would normally convert those payments into German marks,which is what it needs to cover most of its operating expenses. When the ERM bands were narrow,the exchange rate exposure of the German subsidiary was more limited.However,when the bands widened,the probability of a large decline in the value of the French franc or the Belgian franc against the German mark was much higher. Under these conditions,the German mark cash flows received by the German subsidiary would be reduced,which makes it more difficult for the subsidiary to cover its expenses.Dow Chemical Co.attempted to reduce this exchange rate exposure by revising its subsidiaries in Europe in a single currency,the German mark. 1.How might Dow Chemical benefit from pricing all of its European products in German marks? -4-国际财务管理 微型案例 - 4 - depreciate substantially over the next month, but he also believes that the pound could appreciate substantially if specific situations occur. Should Jim use currency futures or currency options to hedge the exchange rate risk? Is there any disadvantage of selecting this method for hedging? 5. Impact of Russian Inflation on Exchange Rates The opening of Russia’s market has encouraged many U.S. firms to consider capitalizing on various opportunities there. However, this opening has resulted in numerous problems for McDonalds, IBM, and other U.S. firms operating in Russia. Specifically, the value of the Russian currency (the ruble) has been very volatile. In fact, it declined by 15 percent on a single day. One of the main reasons for persistent weakness in the ruble is Russia’s inflation. The inflation rate in Russian has commonly exceeded 20 percent per month. Russian interest rates commonly exceed 150 percent, but this is far less than the annual inflation rate in Russia, which is estimated to be 8000 percent. 1. Explain why the Russian inflation of about 800 percent was placing severe pressure on the value of the Russian ruble. 2. Does the effect of Russian inflation on the decline of the ruble’s value support the theory of purchasing power parity (PPP)? How might the relationship be distorted by political conditions in Russia? 3. Does it appear that the prices of Russian goods will be equal to the prices of U.S. goods from the perspective of Russian consumers (after considering exchange rates)? Explain. 4. Given the 800 percent inflation and the decline in the ruble, will the effects offset each other for U.S. importers? That is, how will U.S. importer of Russian goods be affected by the conditions? 6. Dow Chemical’s Exchange Rate Exposure Since 1992, when the bands surrounding the exchange rate between European currencies were widened, U.S.-based MNCs with European subsidiaries that sell to various European countries became more exposed to exchange rate risk. The bands were 2.5 percent in either direction from a specified exchange rate between two European currencies before 1992; in 1992, the exchange rate mechanism (ERM) in Europe was adjusted to allow for a 15 percent band in either direction. Dow Chemical Co. was one of many U.S. firms that had European subsidiaries whose cash flows were affected. Consider how a German subsidiary of Dow Chemical is affected if it accepted the European currency of choice by each European customer that imported products from that subsidiary. The German subsidiary would normally convert those payments into German marks, which is what it needs to cover most of its operating expenses. When the ERM bands were narrow, the exchange rate exposure of the German subsidiary was more limited. However, when the bands widened, the probability of a large decline in the value of the French franc or the Belgian franc against the German mark was much higher. Under these conditions, the German mark cash flows received by the German subsidiary would be reduced, which makes it more difficult for the subsidiary to cover its expenses. Dow Chemical Co. attempted to reduce this exchange rate exposure by revising its subsidiaries in Europe in a single currency, the German mark. 1. How might Dow Chemical benefit from pricing all of its European products in German marks?