International Financial Management MID

1. a. Explain the theory of product cycle theory. [CLO 01, L02, Marks: 2] b. Explain why exchange rates may not correct a balance of trade deficit. [CLO 01, L02, Marks: 3] 2. These spot foreign exchange rates were reported on October 29, 2025. The exchange rates below represent the number of U.S. dollars required to purchase one unit of the foreign currency: US S Canadian Dollar (C$) Mexican Peso 0.70 0.07 Requirements: a. Integrate whether the above foreign exchange rates are direct or indirect quotes from the perspective of a U.S. investor. b. Calculate how much of each foreign currency is required to purchase one U.S. dollar: I. Canadian Dollar (C$) II. Mexican Peso c. Calculate cross exchange rates between the following pair of currencies: I. Mexican Peso and Canadian Dollar (C$) [CLO 03, L04, Marks: 5] 3. a. Analyze whether Chicago Co. could earn speculative profits considering the facts that the New Zealand dollar will appreciate against the U.S. dollar from its spot rate of $.50 to $.52 in 30 days, the firm can borrow $10 million, U.S. dollar borrowing rate is 7.20% (annualized) and NZ $ lending rate is 6.48% (annualized). [CLO 03, L04, Marks: 4] b. Analyze how changes in relative interest rates between countries typically affect exchange rates with the aid of an exhibit. [CLO 03, L04, Marks: 3] 4. a. Illustrate how firms engage in international business with appropriate examples. [CLO 02, L03, Marks: 4] b. Identify the factors affecting international portfolio investment. [CLO 02, L03, Marks: 4]