Case 1: The Euro in Crisis
a) Evaluate the European Central Bank’s (ECB) response to the financial crisis of 2008-2010. What was their analysis of the problem? b) The ECB responded less aggressively than the US Federal Reserve to the crisis. Why? c) In May 2010, should the ECB agree to purchase Greek sovereign debt?
Case 2: Foreign Ownership of US Treasury Securities a) Why is foreign ownership of US Treasury securities rising?
It is more interesting for foreigners to buy US debt to hedge their holdings.
- Accumulating budget deficit (mandatory public spending, military spending) huge military spending due to wars in Iraq and Afghanistan. 9/11 and war on terrorism.
Foreign investors …show more content…
Case 5: Groupe Ariel S.A.: Parity Conditions and Cross-Border Valuation a) Compute the NPV of Ariel-Mexico’s recycling equipment in pesos by discounting incremental peso cash flows at a peso discount rate. How should this NPV be translated into Euros? Assume expected future inflation for France is 3% per year. b) Compute the NPV in Euros by translating the project’s future peso cash flows into Euros at expected future spot exchange rates. Note that Ariel’s Euro hurdle rate for a project of this type was 8%. Again, assume that annual inflation rates are expected to be 7% in Mexico and 3% in France. c) Compare the two sets of calculations and the corresponding NPVs. How and why do they differ? Which approach should Arnaud Martin use? d) Should Groupe Ariel approve the equipment purchase? Justify your answer.
Case 6: Melco Entertainment – note that an excel spreadsheet is posted to the portal under the December 7th lecture that will help with the analysis for this case.
a) Estimate the expected cost savings each year due to synergies with MGM?
b) Establish the free cash flows that MGM would use to value the company’s equity. How should MGM establish a terminal value?
c) What discount rate should be used to discount the cash flows and terminal value to arrive