Essay Available:
You are here: Home → Case Study → Accounting, Finance, SPSS
Pages:
3 pages/≈1650 words
Sources:
6 Sources
Level:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 28.08
Topic:
Company Valuation of Navigation Systems Inc (Case Study Sample)
Instructions:
estimate the value of navigation systems inc in the respective countries where they do business namely the united states, germany and china.
also to give the value of the company in the united states dollars
give a brief description of forward exchange rates and the types of transactions .
Content:
INTERANTIONAL FINANCE INVESTMENT
Student’s Name
Course Name
Date Due
CASE ON NAVIGATION SYSTEM INC
For the purpose of this paper, we shall use the following exchange rates for the Euro and the Chinese Yuan or RMB
EURO / USD = 1.13 i.e. for € 1 = USD $ 1.13
USD / Chinese Yuan = 6.378 or USD$1 = Yuan 6.378
The equivalent of the Euros and the Chinese Yuan in United States dollars are then calculated as below. Operations in the United States = USD$ 300 million
Operations in Germany = EURO 100 million
Operations in Shanghai = 650 million Yuan
We convert the values of operations in different countries to the United States Dollar using the spot exchange rate and have the following values of operations in the United States.
Country Respective Value In The CountryOperations Value In USD$United States USD $ 300 MillionUSD $ 300 MillionGermanyEURO 100 MillionUSD $113 MillionChina RMB 650 MillionUSD $101.91 Million
In the following table we show the value of operations together with the respective values of return on sales. We take note that the return on sales is calculated as a percentage of the total operations. We use the formula as EMBED Equation.3
The following table displays the total value of operations for Navigation System Inc in the United States denominated in USD$ exchanged using spot rates for the dollar in the countries where the operations were made.
CountryValue of operations ROSValue of return on sales Total ValueUnited States300 Million10%30 Million330 MillionGermany113 Million12%13.56 Million126.56 MillionChina101.91 Million8%8.1528 Million110.0628 MillionTotal514.91 Million51.7126 Million566.6228 Million
It is given that the forecast value total for the corporation in one year is expected to be USD$ 500 million. But according to the table above, the value of operations made from abroad increased because of the value of the USD$ in the foreign countries. We realize that using spot exchange rate, the total value of revenues is USD$ 514.91 million. The value of return of sales in the United States is USD$ 51.7126 million. The total value from operations including ROS at spot exchange rate is USD$ 566.6228 million.
Forward Exchange Rate
The forward exchange rate or forward rate also called the forward price is a rate of exchange where a bank or an entity or business makes an agreement to exchange a particular currency for another currency but at a future date when it makes a forward contract with a given investor. This exchange rate depends on the spot exchange rate and the interest rate in the country where the value of the currencies are derived.
The forward exchange rate is calculated using the formula below.
EMBED Equation.3 Where F is the forward exchange rate
S is the spot exchange rate, rd is the interest rate in the domestic market and rf is the interest rate in the foreign market. According to tradingeconomics.com (2015), the interest rates in United States are 0.25%, Germany is 0.05% and in china the interest rate is 4.6%.
For the operations made in Germany, we can obtain the forward exchange rate as EMBED Equation.3 where S = 0.88, so EMBED Equation.3 , EMBED Equation.3 = 0.88176.
We see that the forward rate of the Euro to the dollar is 1.1340 i.e. for one Euro there are USD$ 1.134
We now find the forward rate of the Chinese RMB with the same formula. That is to say EMBED Equation.3 where S = 6.378. rf = 4.6% or 0.046
EMBED Equation.3 . The forward rate for the Chinese RMB Yuan is 6.1128.we now calculate and find the value of the operations in the United States at the forward rates. We use the following table to give a summary of the same.
Country Respective Value In The CountryForward RateOperations Value In USD$United States USD $ 300 MillionN/AUSD $ 300 MillionGermanyEURO 100 Million1.134USD $113.4 MillionChina RMB 650 Million6.1128USD $106.334 MillionThe following table displays the total value of operations for Navigation System Inc in the United States denominated in USD$ exchanged Forward Exchange Rates for the dollar in the countries where the operations were made
CountryValue of operations ROSValue of return on sales Total ValueUnited States300 Million10%30 Million330 MillionGermany113.4 Million12%13.608 Million127.008 MillionChina106.334 Million8%8.50672 Million114.84072 MillionTotal519.734 Million52.11472 Million571.84872 MillionWe note from the table above that with forward exchange rate, the corporation would expect repatriate more money to the United States than when they use spot exchange rate. We use the following table to show the differences
CountrySpot rate value (millions)Forward rate value (millions)Total value at spot (millions)Total value at forward (millions) United States300 300300300Germany 113113.4126.56127.008China 101.91106.334110.0628114.84072
We note clearly that forward exchange rate gives an expected higher value of the repatriations than spot exchange rates.
The following are explanations of the different repatriations using spot exchange rate, forward exchange and the foreign exchange swaps.
Spot Transactions
Spot transactions are transactions which occur whenever foreign exchange purchases are made (wiseGEEK, 2015). With spot transactions, the terms usually call for paying for a currency which usually is at specified rate time as well as in the currency preffered by the seller. In some of the cases, terms allow the person paying to pay for the currency in a specified period of time and many cases it is within forty eight hours following the signing of the contract.
Spot transactions are also associated with transactions made in the foreign country...
Student’s Name
Course Name
Date Due
CASE ON NAVIGATION SYSTEM INC
For the purpose of this paper, we shall use the following exchange rates for the Euro and the Chinese Yuan or RMB
EURO / USD = 1.13 i.e. for € 1 = USD $ 1.13
USD / Chinese Yuan = 6.378 or USD$1 = Yuan 6.378
The equivalent of the Euros and the Chinese Yuan in United States dollars are then calculated as below. Operations in the United States = USD$ 300 million
Operations in Germany = EURO 100 million
Operations in Shanghai = 650 million Yuan
We convert the values of operations in different countries to the United States Dollar using the spot exchange rate and have the following values of operations in the United States.
Country Respective Value In The CountryOperations Value In USD$United States USD $ 300 MillionUSD $ 300 MillionGermanyEURO 100 MillionUSD $113 MillionChina RMB 650 MillionUSD $101.91 Million
In the following table we show the value of operations together with the respective values of return on sales. We take note that the return on sales is calculated as a percentage of the total operations. We use the formula as EMBED Equation.3
The following table displays the total value of operations for Navigation System Inc in the United States denominated in USD$ exchanged using spot rates for the dollar in the countries where the operations were made.
CountryValue of operations ROSValue of return on sales Total ValueUnited States300 Million10%30 Million330 MillionGermany113 Million12%13.56 Million126.56 MillionChina101.91 Million8%8.1528 Million110.0628 MillionTotal514.91 Million51.7126 Million566.6228 Million
It is given that the forecast value total for the corporation in one year is expected to be USD$ 500 million. But according to the table above, the value of operations made from abroad increased because of the value of the USD$ in the foreign countries. We realize that using spot exchange rate, the total value of revenues is USD$ 514.91 million. The value of return of sales in the United States is USD$ 51.7126 million. The total value from operations including ROS at spot exchange rate is USD$ 566.6228 million.
Forward Exchange Rate
The forward exchange rate or forward rate also called the forward price is a rate of exchange where a bank or an entity or business makes an agreement to exchange a particular currency for another currency but at a future date when it makes a forward contract with a given investor. This exchange rate depends on the spot exchange rate and the interest rate in the country where the value of the currencies are derived.
The forward exchange rate is calculated using the formula below.
EMBED Equation.3 Where F is the forward exchange rate
S is the spot exchange rate, rd is the interest rate in the domestic market and rf is the interest rate in the foreign market. According to tradingeconomics.com (2015), the interest rates in United States are 0.25%, Germany is 0.05% and in china the interest rate is 4.6%.
For the operations made in Germany, we can obtain the forward exchange rate as EMBED Equation.3 where S = 0.88, so EMBED Equation.3 , EMBED Equation.3 = 0.88176.
We see that the forward rate of the Euro to the dollar is 1.1340 i.e. for one Euro there are USD$ 1.134
We now find the forward rate of the Chinese RMB with the same formula. That is to say EMBED Equation.3 where S = 6.378. rf = 4.6% or 0.046
EMBED Equation.3 . The forward rate for the Chinese RMB Yuan is 6.1128.we now calculate and find the value of the operations in the United States at the forward rates. We use the following table to give a summary of the same.
Country Respective Value In The CountryForward RateOperations Value In USD$United States USD $ 300 MillionN/AUSD $ 300 MillionGermanyEURO 100 Million1.134USD $113.4 MillionChina RMB 650 Million6.1128USD $106.334 MillionThe following table displays the total value of operations for Navigation System Inc in the United States denominated in USD$ exchanged Forward Exchange Rates for the dollar in the countries where the operations were made
CountryValue of operations ROSValue of return on sales Total ValueUnited States300 Million10%30 Million330 MillionGermany113.4 Million12%13.608 Million127.008 MillionChina106.334 Million8%8.50672 Million114.84072 MillionTotal519.734 Million52.11472 Million571.84872 MillionWe note from the table above that with forward exchange rate, the corporation would expect repatriate more money to the United States than when they use spot exchange rate. We use the following table to show the differences
CountrySpot rate value (millions)Forward rate value (millions)Total value at spot (millions)Total value at forward (millions) United States300 300300300Germany 113113.4126.56127.008China 101.91106.334110.0628114.84072
We note clearly that forward exchange rate gives an expected higher value of the repatriations than spot exchange rates.
The following are explanations of the different repatriations using spot exchange rate, forward exchange and the foreign exchange swaps.
Spot Transactions
Spot transactions are transactions which occur whenever foreign exchange purchases are made (wiseGEEK, 2015). With spot transactions, the terms usually call for paying for a currency which usually is at specified rate time as well as in the currency preffered by the seller. In some of the cases, terms allow the person paying to pay for the currency in a specified period of time and many cases it is within forty eight hours following the signing of the contract.
Spot transactions are also associated with transactions made in the foreign country...
Get the Whole Paper!
Not exactly what you need?
Do you need a custom essay? Order right now:
Other Topics:
- Case Analysis of Brisbane Airport CorporationDescription: With the introduction of B2C mode of digital servicing strategy within its overall revenue and operational activities over the infrastructure of airport...1 page/≈275 words| 5 Sources | APA | Accounting, Finance, SPSS | Case Study |
- Conceptual Framework for Principles-Based StandardsDescription: A conceptual framework revolves around theoretical and conceptual issues of financial reporting and defines the purpose as well as accounting nature...11 pages/≈3025 words| APA | Accounting, Finance, SPSS | Case Study |
- Financial Analysis of Jet BlueDescription: As of now, most of the passengers widely travel from one corner of the world to others by selecting and choosing the varied modes of available air lines companies...1 page/≈275 words| APA | Accounting, Finance, SPSS | Case Study |
