T10 EIC 8 (Tutorial)

You start an overseas holiday with $2,000 AUD and fly to Thailand, exchanging your AUD to THB (Thai Baht) at the exchange rate of: AUD/THB 21.88/21.95

At the end of your trip in Thailand, you have 40% of the Thai Baht you exchanged left and for the next part of your holiday you fly Shanghai (China). Needing CNY (Chinese Yuan) you exchange the remainder of your Thai Baht in CNY at the following exchange rate: THB/CNY 0.20/0.25

How much CNY (rounded down) will you have?

T10 EIC 5 (Tutorial)

You are at Changi Airport, flying from Singapore to Melbourne (Australia) and wish to exchange 1,000 SGD (Singapore dollars) into AUD before your flight.

You see two foreign exchange rate dealers who are quoting: 

SuperRich Dealer:       SGD/AUD    1.2189/1.2194 

SuperCheap Dealer:    SGD/AUD    1.3189/1.3194 

Which dealer should you transact with and how much AUD will you receive?

T10 EIC 4 (Lecture)

You are at Changi Airport, flying from Singapore to Melbourne (Australia) and wish to exchange 1,000 SGD (Singapore dollars) into AUD before your flight.

You approach a foreign exchange rate dealer who quotes you: 

SGD/AUD    1.2189/1.2194 

How much AUD will you receive?

T10 KCT 3 (Lecture)

An Australian exporter sells wheat to Bahrain for a fixed USD price with settlement in a month. 

The exporter faces downside foreign exchange risk from which of the following exchange rate movements?

(select all correct answers only, selecting the wrong answer will result in a mark penalty. selecting all answers will result in 0)

T10 EIC 1 (Lecture)

Given the following exchange rate: select which of the following statements are TRUE.

AUD/USD:     0.6850    0.6900

(select all correct answers only, selecting the wrong answer will result in a mark penalty. selecting all answers will result in 0)

Financial Institutions 

Explain the credit-risk mismatch surplus (e.g. depositors)

and deficit (e.g. home-loan borrowers) units that prevents the flow of funds in

direct finance. 

Then, explain how banks overcome this mismatch by transforming

credit risk, that allows low credit-risk deposits to be lent out as higher

credit-risk home loans? Include in your answer the role that financial regulation

plays in this process. 

Monash Bank has $400 million of interest-earning assets yielding

4% and $550 million in liabilities that cost 1.5%. Monash Bank has $600 million

in debt and $60 million in equity. Calculate the Net Interest Margin (also

called Interest Rate Margin) of the bank, to 2 decimal places. Show your

working by identifying the answers to the variables of the NIM formula. 

(2 + 6 + 4 =12 marks)

Apply the specific theory of Foundations of Finance to

answer the following questions only. Curriculum from any other unit, AI answers

or internet answers are easily recognisable and will earn 0 marks.

Financial Regulation 

Use an example of either the Official Cash Rate, the Capital

Adequacy Ratio or IPO requirements, to fully describe how

a)     

b)     

c)     

(6 marks) 

Given the example of regulation change that you have used

above, explain the presence or absence of any trade-off between banking costs

and safer banks that consumers/investors face. 

(6 + 2 = 8 marks) 

Apply the specific theory of Foundations of Finance to

answer the following questions only. Curriculum from any other unit, AI answers

or internet answers are easily recognisable and will earn 0 marks.

The code for this question is CB2

Part A (6 marks)

Rio Tinto is considering buying in a new gold mine which is forecast to start earning $28,000,000 of revenue in the 2nd year of operation. Production of nickel is expected to increase by 10% p.a. after, having a consequent impact on revenue. Production costs start at 40% of the first annual revenue, increasing by an additional 1.5% of annual revenue each year after. The mine is kept for 5 years of production, after which the gold is exhausted and is expected to fetch a sale price of only $3,000,000 in the final year of production.

Setting up the mine requires $50 mil today, $38 mil in the first year of operation and $5 mil in the 2nd year of operation. 65% of capital is financed through debt which has a cost of 7% and shareholders require a 8% premium on what creditors earn. Calculate the discount rate, NPV and IRR of this project.

Part B (6 marks)

Rio Tinto is also considering upgrading a fleet of 1,000 mining trucks to an electrically powered variant that will cost $27,000 per truck at current year prices. The anticipated diesel cost-saving starts in the first half year of operation for 6 years and is $5,000 per truck, semi-annually. The cost saving is expected to diminish by 5% each semi-annual period thereafter. These mining trucks are to be used in the new gold mine proposed in Part A. At the end of 6 years of operation, the trucks will be scrapped for 30% of their initial cost.

The capital structure of Rio Tinto remains unchanged from part A. Calculate the discount rate, NPV and IRR of this project, using the project cash flows specified in this part only. Do not combine the cash flows from part A. Note: This is a project that is contingent on the project in part A going ahead i.e. if the part A project does not go ahead, neither will this project here. However, part A can go ahead, without part B.

Part C (4 marks)

Rio Tinto treasury has come up with updated cash flow forecasts for the new gold mine proposed in Part A. The sale of the mine is now expected to fetch $3.5mil in the final year of production. The proportion of debt capital used to finance the new gold mine only, can be increased to 70%. There are no other changes to the capital budgeting estimates of the project. (Part B is unaffected by any changes here.)

Re-calculate the discount rate, NPV and IRR of this project.

Part D (4 marks)

Prior to the treasury updates of mine project cash flow estimates, what is the COMBINED resulting NPV of both the new gold mine and the truck upgrade? What is the most appropriate recommendation regarding the projects to maximise NPV? (Should both projects be taken, or only one or the other or none?)

After the treasury updates of mine project cash flow estimates, what is the COMBINED resulting NPV of both the new gold mine and the truck upgrade? What is the most appropriate recommendation regarding the projects to maximise NPV? (Should both projects be taken, or only one or the other or none?)

Brian is considering investing in a fast food franchise which is forecast to earn Net Cash Flows of $60,000 per annum for the foreseeable future. The price to invest is $1 million. However, the Australian economy is weakening and in recession, which sharply increases the risk of the franchise. Which of the following conclusions reflects an appropriate adjustment to the risk-return relationship? Select all correct answers only. 

Given that government 5-year bonds have a current yield to maturity of 3%, with no other consideration, which of the following investments should you NOT invest in? Select all correct answers only.  Assume all percentages given in this question are per annum.