International Accounting
5th Edition
ISBN: 9781259747984
Author: Doupnik, Timothy S., Finn, Mark T., Gotti, Giorgio
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 9EP
a.
To determine
Determine the amount of unfavorable total
b.
To determine
Estimate that profit if the economic exposure has taken to foreign exchange risk and the subsidiary’s manager had taken the full advantage of decrease in the value of MXN.
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On May 1, 2XX3, a bundle of goods in China costs 5,000,000 yuan, while the same goods cost $60,000 in the United States. Over the next year, inflation in the U.S. is expected to be 3%, while inflation in China is expected to be 5%. Which of the following statements is true?
A.
In one year the exchange rate is $84.9515/yuan and the dollar has appreciated against the yuan.
B.
In one year the exchange rate is $0.0118/yuan and the dollar has appreciated against the yuan.
C.
In one year the exchange rate is $84.9515/yuan and the dollar has depreciated against the yuan.
D.
In one year the exchange rate is $0.0118/yuan and the dollar has depreciated against the yuan.
E.
In one year the exchange rate is 84.9515yuan/$ and the dollar has depreciated against the yuan.
Suppose that a US-based company is buying Chinese goods. Current exchange rate for Chinese
Yuan is 0.15 USD. The price of goods is ¥13,000 per unit. The company is buying 800 units per
year with a fixed contract for the next two years. Suppose that Chinese Yuan appreciate to 0.2
USD in the next year. The US importer will respond to this by lowering the demand to 600 units in
the third year.
What cash flow will be reflected on the balance of payments at the end of the third year?
Your Answer:
Global Electronics Inc. invested $1,000,000 to build a plant in a foreign country. The labor and materials used in production are purchased locally. The plant expansion was estimated to pro-duce an internal rate of return of 20% in U.S. dollar terms. Due to a currency crisis, the currency exchange rate between the local currency and the U.S. dollar doubled from two local units per U.S. dollar to four local units per U.S. dollar.
Write a brief memo to the chief financial officer, Tom Greene, explaining the impact that the currency exchange rate change would have on the project’s internal rate of return if (1) the plant produced and sold product in the local economy only, and (2) the plant produced all product locally and exported all product to the United States for sale.
Chapter 10 Solutions
International Accounting
Ch. 10 - Prob. 1QCh. 10 - What makes calculation of NPV for a foreign...Ch. 10 - How does the evaluation of a potential foreign...Ch. 10 - Prob. 4QCh. 10 - How does an ethnocentric organizational structure...Ch. 10 - Prob. 6QCh. 10 - When might it be appropriate to evaluate the...Ch. 10 - Prob. 8QCh. 10 - Prob. 9QCh. 10 - How can a local currency operating budget and...
Ch. 10 - Prob. 11QCh. 10 - What is the advantage of using a projected future...Ch. 10 - Prob. 3EPCh. 10 - Prob. 4EPCh. 10 - Imogdi Corporation (a U.S-based company) has a...Ch. 10 - Philadelphia, Inc. (a Greek company) has a foreign...Ch. 10 - Fitzwater Limited (an Irish company) has a foreign...Ch. 10 - Prob. 9EPCh. 10 - Viking Corporation (a U.S.-based company) has a...Ch. 10 - Duncan Street Company (DSC), a British company, is...
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- Voltac Corporation (a U.S.-based company) has the following import/export transactions denominated in Mexican pesos in 2020: Bought inventory costing 110,000 pesos on credit. Sold 60 percent of the inventory for 90,000 pesos on credit. Collected 75,000 pesos from customers. Paid 65,000 pesos to suppliers. March 1 May 1 August 1 September 1 Currency exchange rates for 1 peso for 2020 are as follows: U.S. Dollar per Peso $ 0.19 Date March 1 May 1 0.20 August 1 September 1 0.21 0.22 0.23 December 31 Assume that all receipts were converted into dollars as soon as they were received. For each of the following accounts, what amount will Voltac report on its 2020 financial statements? Inventory b Cost of goods sold Sales Accounts receivable e Accounts payable f Casharrow_forwardYou are required to forecast the expected change in the exports to the USA from China and Japan. The spot rate is 200 Japanese yen per yuan. The spot rate 6-months before was 180 Japanese yen per Yuan. The value of Chinese yuan is tied with the US$ and it will be. a. From China remain same, from Japan will increase. b. From China will increase, from Japan will remain same. c. From China remain same, from Japan will decrease. d. From China will decrease, from Japan will remain same. с. Answer OA Submit U: 0.0kB/s ch D: 0.0 kB/s DELLarrow_forwardVoltac Corporation (a U.S.-based company) has the following import/export transactions denominated in Mexican pesos in 2020: March 1 Bought inventory costing 119,000 pesos on credit. May 1 Sold 60 percent of the inventory for 99,000 pesos on credit. August 1 Collected 79,500 pesos from customers. September 1 Paid 69,500 pesos to suppliers. Currency exchange rates for 1 peso for 2020 are as follows: Date U.S. Dollar per Peso March 1 $ 0.17 May 1 0.18 August 1 0.19 September 1 0.20 December 31 0.21 Assume that all receipts were converted into dollars as soon as they were received. Voltac will report each of the following accounts on its 2020 financial statements. Inventory $8,092 Cost of goods sold $12,138 Sales $17,820 Accounts receivable $4,095 Accounts payable $10,395 Cash $1,205 What are the corresponding journal entries?arrow_forward
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