Principle of comparative advantage
Question 1. Why are interest rate swaps based upon the principle of comparative advantage?Question 2. For a swap to provide a real economic benefit to both parties, why must a barrier generally exist to prevent arbitrage from functioning fully?
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What is the project's weighted average cost of capital? How does it compare with the parent's WACC?
Explain the impact on the currency's value of the following factors:
Assumptions as in situation (a) except that you can borrow in local financial markets at 10 %, but you have reason to believe that exchange and capital markets
When an MNC is considering financing a portion of a foreign project within the foreign country, the best method to account for a foreign project's risk is to:
Why are interest rate swaps based upon the principle of comparative advantage?
Currency exchange rates are affected by many factors. Determine the effect of the following factors on the rate of currency exchange between 2 countries:
Who are the principal users of the forward market? What are their motives?
Why doesn't the rational efficient markets paradigm provide a satisfactory explanation for many foreign exchange market anomalies?
What determines the value of the exchange rate?
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