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1. Discuss the factors that Furs considered in embarking on its international expansion. 2. If Furs takes on a Euro loan assuming real interest rates are equal across countries, should it be concerned about a possible appreciation or depreciation of the Euro? Why? 3. Based on your prediction in Q2, how would changes in the USD/EUR exchange rate affect Furs USD revenue? How they can maintain their income margin? How may the predicted change in the USD/EUR exchange rate affect Furs ability to repay its Euro denominated loan? 4. If Furs takes on a Euro loan, based on Balance of Payments forecasts should it be concerned about a possible appreciation or depreciation of the Euro? Why? 5. Assume that Furs borrows floating at the market rate whilst Ananse Corp borrows fixed at the market rate. Further, assume that Ananse Corp. and Furs enter into a swap where Ananse pays a floating rate of LIBOR and receives a fixed rate of 5.5%. Show the distribution of gains between Ananse Corp. and Furs. Who benefits the most from this swap arrangement? 6. What are the possible dangers of entering into the interest rate swap above? 7. Holding transaction costs, taxation and other factors constant, which bank(s) will provide better interest on the short-term deposit? 8. If Furs had instead decided to hedge using interest rate futures, should it buy or sell futures on the Euro and why? 9. If Albert recommends to the Board to borrow in the Japanese Yen what are the possible risks? How can Furs use a currency swap to manage this risk? 10. If Furs uses a forward hedge to hedge the Japanese Yen Payables, how much would it pay using differences in interest rates as the basis to forecast the forward rate. 11. If Furs uses a money market hedge, how should this be constructed?

12. Find the break-even rate between the forward hedge and the money market hedge. How will this inform the choice between the forward hedge and the money market hedge? 13. Does it make sense for Furs to open a branch in Japan or seek to have revenues in Japanese Yen?

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