1. ( six parts) Harmony is a South African mining company that sells gold globally. Gold...

50.1K

Verified Solution

Question

Finance

1. ( six parts) Harmony is a South African mining company thatsells gold globally. Gold is priced in dollars but South Africanminers are paid in rand (“rand” is the South African currency). Thecurrent price of gold is $1,288 an ounce. The current exchange rateis 8.62 rand (R) per $1. Harmony’s current costs are R10,930 perounce. Expected one-year inflation rates are 2% in the U.S. and 8%in South Africa. [Note that the “ounces” in this case are like “BMWcars” in quiz 6, but the questions below are per ounce, or “percar”]
a) (3points) How much profit per ounce is Harmony currentlygenerating (in rands)?

b) (3 points) What exchange rate does PPP predict in oneyear?

c) (3 points) What level of revenues in one year would maintainHarmony’s profitability in real (inflation-adjusted) terms?

d) (3 points) If in one year the actual exchange rate is R6.60per $1, has the rand appreciated or depreciated against the dollarin nominal terms?

e) (3 points) Based on the exchange rate in d), what will beHarmony’s profit per ounce in one year?

f) (3 points) State whether Harmony benefits from anappreciation or depreciation of the dollar against the rand?

Answer & Explanation Solved by verified expert

4.3 Ratings (829 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

1. ( six parts) Harmony is a South African mining company thatsells gold globally. Gold is priced in dollars but South Africanminers are paid in rand (“rand” is the South African currency). Thecurrent price of gold is $1,288 an ounce. The current exchange rateis 8.62 rand (R) per $1. Harmony’s current costs are R10,930 perounce. Expected one-year inflation rates are 2% in the U.S. and 8%in South Africa. [Note that the “ounces” in this case are like “BMWcars” in quiz 6, but the questions below are per ounce, or “percar”]a) (3points) How much profit per ounce is Harmony currentlygenerating (in rands)?b) (3 points) What exchange rate does PPP predict in oneyear?c) (3 points) What level of revenues in one year would maintainHarmony’s profitability in real (inflation-adjusted) terms?d) (3 points) If in one year the actual exchange rate is R6.60per $1, has the rand appreciated or depreciated against the dollarin nominal terms?e) (3 points) Based on the exchange rate in d), what will beHarmony’s profit per ounce in one year?f) (3 points) State whether Harmony benefits from anappreciation or depreciation of the dollar against the rand?