Chapter 1, Problem 32QA

MNC Cash Flows and Exchange Rate Risk Asheville Co. has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in the facility. Asheville Co. has no other international business. All operations are presently funded by Asheville’s parent. All the software is sold to U.S. firms by Asheville’s parent and invoiced in U.S. dollars.If the Mexican peso appreciates against the dollar, does this have a favorable effect, unfavorable effect, or no effect on Asheville’s value?

Suppose InBev Corporation (a non-U.S. MNC) buys Anheuser-Busch Corporation (a U.S. corporation) by paying the U.S. shareholders in cash. Which of the following can be said of the US capital account?   Group of answer choices   The acquisition of cash by US shareholders will decrease foreign ownership, which will be recorded as a debit.   The US federal reserve will increase its currency reserves.   InBev's reduction in cash will be recorded as a debit on the U.S. capital account..   InBev's increased ownership of US assets is recorded as a credit.   U.S. shareholders increased ownership in InBev will be recorded as a credit.

Suppose that Salem Co, a U.S.-based MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar (the only foreign currency in which it deals). Salem believes that the value of the Canadian dollar will be $0.70, $0.75, or $0.80, and seeks to analyze its cash flows under each of these scenarios. The following table shows Salem’s cash flows under each of these exchange rates. Use the table to answer the question that follows.   Exchange Rate Scenario   Exchange Rate Scenario   Exchange Rate Scenario C$1=$0.70 C$1=$0.75 C$1=$0.80 (Millions) (Millions) (Millions) Sales           (1) U.S. Sales $315   $315   $315 (2) Canadian Sales $3.50   $4.00   $4.00 (3) Total Sales in U.S. $ $318.50   $318.75   $319.00 Cost of Materials and Operating Expenses           (4)…