International Finance: Venture Entrepreneurship Class Exercises

This assignment covers key concepts in international finance and venture entrepreneurship, addressing true/false questions, multiple-choice questions, and open-ended questions related to the Foreign Corrupt Practices Act, ethical and labor-related issues in the international market, and LIBOR rates. A case study is presented, requiring the computation of future dollar costs using money market hedge and forward hedges, as well as the expected future dollar cost using an option hedge. The analysis determines the future spot rate at which PCC may be indifferent between the option and forward hedge. This student-contributed assignment is available on Desklib, a platform offering study tools and resources for students.

BUSINESS INFO
Venture Entrepreneurship
Entrepreneurial Ventures
Name of the author

Table of Contents
Answer to the question no-1.......................................................................................................................2
TRUE OR FALSE............................................................................................................................................2
Answer to the question no-2.......................................................................................................................2
MULTIPLE CHOICE QUESTIONS....................................................................................................................2
Answer to the question no-3.......................................................................................................................2
OPEN ENDED QUESTIONS............................................................................................................................2
What ethical and labour-related issues are a major challenge to footwear and clothing in the
International Market?..............................................................................................................................2
What is LIBOR rate?.................................................................................................................................3
Answer to the question no-4.......................................................................................................................3
CASE STUDY.................................................................................................................................................3
Compute the future dollar costs of meeting this obligation using the money market hedge and the
forward hedges........................................................................................................................................3
Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the
expected future dollar cost of meeting this obligation when the option hedge is used..........................3
At what future spot rate do you think PCC may be indifferent between the option and forward hedge?
.................................................................................................................................................................3
REFERENCES................................................................................................................................................4

Answer to the question no-1
TRUE OR FALSE
QUESTION TRUE/FALSE JUSTIFICATION
1. True It is analyzed that in a bullish
market, the maximum loss
would be the premium paid or
loss of interest on the invested
capital.
The potential profit will be
higher in case if the market is
bullish. It will result to higher
profit as higher the market and
there will be high differences
between the exercised price
and shares sold price
Bariviera, et al, 2016).
2. False In the short term, profit will be
low as market price of the
shares will be less increased.
3. False There are several measures or
methods such as performance
guarantees, creating arbitrage
profit and creating shield by
using the hedge funding
(Abrantes-Metz, et al. 2011).

Answer to the question no-2
MULTIPLE CHOICE QUESTIONS
1. Who from the following list would be considered a speculator by entering into a futures or
options contract on commodities?
Answer: Corn delivery truck driver
2. All of the following are financially engineered products, except:
Answer: Mortgage
3. A mutual fund is engaged in the short term and temporary purchase of index futures, for
purposes of minimizing its cash exposures. Which "use" most closely explains their actions?
Answer: Reduced transaction costs
Answer to the question no-3
OPEN ENDED QUESTIONS
What is the Foreign Corrupt Practices Act? How has this law affected ethical behavior
among international businesses?
FOREIGN CORRUPT PRACTICES ACT:
After analyzing this foreign corrupt practice act, it is considered that it stands for the stringing
the ethical behavior and protecting investors from the wrong practices. This acts curb all the
wrong practices and wrong doing of the stakeholders such as officials, employees, directors and
other agents which are indulged in creating their own profit by entering into insider trading and
wrong busienss activities (Brace, atarek, and Musiela, 2017).
AFFECT ON ETHICAL BEHAVIOUR:
This act has been stregnthgin the reporting frameworks and showing the high level of trasprency
which each and every company needs to make to its stakehodlers.

Any party whosoever breaches the applied rules and regulations will disgorge the ill-gotten
profits as well as the interest then the penalties will be imposed and he wile be liable to fine and
imprisonment or both.
What ethical and labour-related issues are a major challenge to footwear and clothing in
the International Market?
 There are several ethical and labour related issues which are the major challenges to footwear
and clothing in the international market.
 Animal and their skins are used to obtain the leather and wool directly by harnessing their fur
and skins for preparing shoes.
 Damage to environment by using the hazardous substance.
 Increase in the happening of the headache and other human health issues.
 In order to reduce the cost of the production, companies are also reducing the wages given to
employees.
 Child labour and exploitation is also promoted with a view to reduce the cost of the business.
What is LIBOR rate?
It is analyzed that LIBOR rate also called London Inter-Bank Rate. It is the average rate at which
selected bank in the London will be giving or lending money or capital to the clients (Zhu, and
Qu, 2016).
It is among the most common of benchmark interest rate indexes deployed to make adjustments
to adjustable rate mortgage. It is the rate used as standard benchmark by the banks and financial
institutions on all sort of banking products including the mortgagees, loans and saving accounts
(Hoffmann, 2017).
Answer to the question no-4
CASE STUDY
There are following information given as below
Spot rate : 124 yen per dollar

1 year forward : 110 yen per dollar
Borrowed amount by PCC : 500 million yen
Interest rate in Japan : 5%p.a.
Interest rate in US. : 8%p.a.
Call option strike price : $.0081 per yen
Premium : .014 cents per yen
Compute the future dollar costs of meeting this obligation using the money market hedge
and the forward hedges.
Using money market hedging
: It is analyzed that payable funding will be hedged. Therefore, $ would be considered as home
currency and will be borrowed. After that same will be converted into yen and therefore yen will
be invested in such a way that investors will get yean equal to $ 4.147465438 million.
USING FORWARD HEDGE:
After assessing these details and using the excel file, it could be inferred that the total future cost
would be $ 4.545454545 million
Assuming that the forward exchange rate is the best predictor of the future spot rate,
compute the expected future dollar cost of meeting this obligation when the option hedge is
used.
It is analyzed that as per the excel calculated expected future dollar cost of meeting this
obligation when the option hedge is used will be = $ 4.1256 million (Rebonato, 2012).

At what future spot rate do you think PCC may be indifferent between the option and
forward hedge?
It is analyzed that there are two hedge options which could be used in this case. PCC is required
to pay $ 4.545454545 million in the hedge funding irrespective of the future cash value. The
future spot rate PCC will be indifferent in option and forward hedge funding.

REFERENCES
Abrantes-Metz, R.M., Villas-Boas, S.B. and Judge, G., 2011. Tracking the Libor rate. Applied
Economics Letters, 18(10), pp.893-899.
Zhu, D. and Qu, D., 2016. Libor Local Volatility Model: A New Interest Rate Smile
Model. Wilmott, 2016(82), pp.78-87.
Bariviera, A.F., Guercio, M.B., Martinez, L.B. and Rosso, O.A., 2016. Libor at crossroads:
Stochastic switching detection using information theory quantifiers. Chaos, Solitons &
Fractals, 88, pp.172-182.
Hoffmann, C.H., 2017. Case Study: LTCM and Extreme Risk. In Assessing Risk Assessment (pp.
279-290). Springer Gabler, Wiesbaden.
Rebonato, R., 2012. Modern pricing of interest-rate derivatives: The LIBOR market model and
beyond. Princeton University Press.
Brace, A., G¸ atarek, D. and Musiela, M., 2017, The market model of interest rate
dynamics. Mathematical finance, 7(2), pp.127-155.