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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
13.7Â Â Â Â Â Â Â Consider the investment in China from Problem 13.1.
a.   Suppose that a manager expects the following future exchange rates:
Â
E[S1Â E[S2Â E[S3
Â
Â
ILS/CNY ILS/CNY ILS/CNY
Â
] = ILS 0.5801/CNY
] = ILS 0.6089/CNY
] = ILS 0.6392/CNY
Â
Using a yuan discount rate of 11.745 percent and the shekel discount rate of 15 percent, calculate NPV from the parent and project perspectives. Should the manager invest in the project? Should the manager hedge the project’s currency risk exposure?
b.    Repeat part a using the following expected future spot rates of exchange:
Â
E[S1Â E[S2Â E[S3
Â
Â
ILS/CNY ILS/CNY ILS/CNY
Â
] = ILS 0.5575/CNY
] = ILS 0.5625/CNY
] = ILS 0.5676/CNY
Â
Should the manager invest? Should the manager hedge the project’s currency risk exposure?
Â
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