-Lucy-S-is-a-US-based-restaurant-chain-that-is-expanding-to-Malaysia-business-and-finance-homework-help
-Lucy-S-is-a-US-based-restaurant-chain-that-is-expanding-to-Malaysia-business-and-finance-homework-help
For the questions below please show the working, and do provide brief explanation as to how you came up with answer and what is going on? they look detailed to provide you all the information
1. Lucy’s is a US based restaurant chain that is expanding to Malaysia. Lucy’s can either borrow from a Malaysian bank at 9.55% (in MYR) or from a US bank at 5.50%. The spot rate is USD 0.3560 = MYR 1. The one-year forward rate is USD 0.3425 = MYR 1. If Lucy’s wants the lowest cost (interest rate in USD terms) loan for their US based shareholders, which loan should Lucy’s take?
2. Eight-Mile Electric Motor Co. (EMEM) manufactures electric motors for electric and hybrid cars in their plant in Detroit, Michigan, USA. One of EMEM’s biggest markets is in Europe. EMEM competes with a French producer of electric motors, Citreonic Electric Motor Co. On January 1, 2016, the exchange rate was $1.2250/€. On January 1, 2017 the exchange rate was $1.2150/€. The US experienced a 6.5% inflation rate over that time period. France’s inflation was 3.0%. Assume that EMEM’s manufacturing costs increased at the rate of US inflation. Assume that Citreonic’s costs increased at the rate of French inflation. Did one company gain an advantage over their competitor due to the change in exchange rates? Please show all calculations needed to come to your conclusion.
