Company policy limits part-time labor to 25% of weekly labor requirements. Modify the model as necessary, and then use Solver to minimize the company’s weekly labor costs.
In the employee scheduling example, suppose that each full-time employee works eight hours per day. Thus, Monday’s requirement of 17 employees can be viewed as a requirement of 8(17) =136 hours. The company can meet its daily labor requirements by using both full-time and part-time employees. During each week, a full-time employee works eight hours per day for five consecutive days, and a part-time employee works four hours per day for five consecutive days. A full-time employee costs the company $15 per hour, whereas a part-time employee (with reduced fringe benefits) costs the company only $10 per hour. Company policy limits part-time labor to 25% of weekly labor requirements. Modify the model as necessary, and then use Solver to minimize the company’s weekly labor costs.
Construct a spreadsheet estimating the profits (or losses) that could be earned from this strategy. Should David pursue this strategy?
David expects that the Canadian dollar will depreciate against the U.S. dollar from its spot rate of $0.81 to $0.79 in 90 days. Assume that the following short-term interest rates (annualized) are available to David.
Currency Lending Rate Borrowing Rate U.S. dollar 7.5% 7.8%
Canadian dollar 16.5% 18% Assume David considers borrowing 20 million Canadian dollars and investing the funds in U.S. dollars for 90 days. Construct a spreadsheet estimating the profits (or losses) that could be earned from this strategy. Should David pursue this strategy?
The spot rate of the Australian dollar is $0.74. A call option on Australian dollars with a three-month expiration date has an exercise price of $0.75 and a premium of $0.05. A put option on Australian dollars at the money with a three-month expiration date has a premium of 0.04. You expect the Australian dollar’s spot rate to decline over time and be $0.68 in three months.
Assume that one option contract specifies 100 units.
a. Today, Frank purchased a total of 10 call option contracts on Australian dollars with a
three-month expiration date. Estimate his total profit or loss at the end of three months.
(Assume that the options would be exercised on the expiration date or not at all)
b. Today, Mary sold a total of 15 put option contracts on Australian dollars with a threemonth expiration date. Estimate her total profit or loss at the end of three months.
(Assume that the options would be exercised on the expiration date or not at all)
Suppose that, as of July 1st, a futures contract specifying 500,000 HK dollars and an November settlement date is priced at $0.18. On July 1st, John expects the HK dollar to appreciate and buys a total of 6 futures contracts.
Suppose that, as of July 1st, a futures contract specifying 500,000 HK dollars and an November settlement date is priced at $0.18. On July 1st, John expects the HK dollar to appreciate and buys a total of 6 futures contracts.
a. Assume that, on November 1st (the settlement date), the spot rate of the HK dollar is
$0.20. Calculate the total speculation profits (or losses).
b. Assume that, on November 1st (the settlement date), the spot rate of the HK dollar is
$0.17. Calculate the total speculation profits (or losses)
Explain how each of the following conditions will affect the value of the Canadian dollar, holding other things equal.
Suppose Canada and U.S. engage in a large volume of international capital flows but only a
small volume of international trade. Explain how each of the following conditions will affect the value of the Canadian dollar, holding other things equal. (Hint: Think about how factors affect exchange rate)
a. Canadian inflation has suddenly increased substantially, while U.S.’s inflation
remains low
b. Canadian interest rates have increased substantially, while U.S.’s interest rates remain
low
c. Combine all of the expected impacts from questions a and b to develop an overall
forecast
Explain how the demand and supply schedules of the Chinese RMB would be affected if Chinese inflation suddenly increased substantially, but U.S. inflation remained the same.
Explain how the demand and supply schedules of the Chinese RMB would be affected if Chinese inflation suddenly increased substantially, but U.S. inflation remained the same. Also, draw the supply and demand graph and shows the impact of Rising Chinese inflation on the Equilibrium Value of the Chinese Yuan.
What is the breakeven point of Linda’s speculation put option position?
Linda is a speculator who trades Euros. The current spot rate of the Euro is $1.15. Linda predicts
that the Euro spot rate will be $1.30 after 30 days. Therefore, Linda plans to trade options to
capture the profits from her prediction of the Euro movement. There is currently a put option
with a strike price of $1.20 that will expire in 30 days. The premium per unit of the put option is
$0.08. (Hint: Think about whether Linda should buy or sell the put option based on her
predication on the future sport rate of the Euro)
a. How should Linda trade the put option to capture the profits?
b. Draw the contingency graphs for Linda’s put option position.
c. What is the breakeven point of Linda’s speculation put option position?
How could speculators capitalize on this situation, assuming zero transaction costs?
Assume that a November future contract on Euro was available in May for $1.05 per unit. Also,
assume that forward contracts were available for the same settlement date at a price of $1.08 per
Euro.
a. How could speculators capitalize on this situation, assuming zero transaction costs?
b. How could such speculative activity affect the difference between the forward contract
price and the future price?
Explain that why a weaker dollar might reduce the balance-of-trade deficit?
The United States has had a significant balance-of-trade deficit in decades.
a. Explain that why a weaker dollar might reduce the balance-of-trade deficit?
b. Why might a weak dollar not improve the balance-of-trade deficit?
Is ABC Inc exposed to exchange rate risk?
ABC Inc., a U.S. company, has a German subsidiary that produces and exports electric vehicles.
All of the European countries where it sells its electric vehicles use the Euro as their currency,
the same currency used in Germany. Is ABC Inc exposed to exchange rate risk?
