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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