Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 27, Problem 9P
Summary Introduction
To determine: Whether W enterprises made a gain or loss due to the exchange rate change and how much.
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Last year, the Mexican peso/U.S. dollar exchange rate was MXN13.3872/$. Today, the exchange rate is MXN16.5307/$. A U.S. firm has total assets worth MXN14,790,000 located in Mexico that did not change in value over the year. What was the change in the value of the assets in dollars on the company's U.S. balance sheet?
Multiple Choice
−$193,736.57
$210,087.71
−$210,087.71
$0
$193,736.57
Last year, the Mexican peso/U.S. dollar exchange rate was MXN13.3769/$. Today, the exchange rate is MXN16.4196/$. A U.S. firm has total assets worth MXN14,680,000 located in Mexico that did not change in value over the year. What was the change in the value of the assets in dollars on the company's U.S. balance sheet?
$187,009.61
−$187,009.61
$203,360.75
$0
−$203,360.75
You are the CFO of a US firm whose wholly owned subsidiary in Mexico manufactures component parts for your US assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30% against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take?
Chapter 27 Solutions
Intermediate Financial Management
Ch. 27 - Define each of the following terms: a....Ch. 27 - Prob. 2QCh. 27 - Prob. 3QCh. 27 - Prob. 4QCh. 27 - If the United States imports more goods from...Ch. 27 - Prob. 6QCh. 27 - Should firms require higher rates of return on...Ch. 27 - Prob. 8QCh. 27 - Prob. 9QCh. 27 - Prob. 10Q
Ch. 27 - Prob. 1PCh. 27 - The nominal yield on 6-month T-bills is 7%, while...Ch. 27 - Prob. 3PCh. 27 - If euros sell for 1.50 (U.S.) per euro, what...Ch. 27 - Suppose that the exchange rate is 0.60 dollars per...Ch. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8PCh. 27 - Prob. 9PCh. 27 - Prob. 10PCh. 27 - Boisjoly Watch Imports has agreed to purchase...Ch. 27 - Prob. 12PCh. 27 - Prob. 13PCh. 27 - Prob. 14PCh. 27 - Prob. 1MCCh. 27 - Prob. 2MCCh. 27 - Prob. 3MCCh. 27 - Prob. 4MCCh. 27 - Prob. 5MCCh. 27 - Prob. 6MCCh. 27 - Prob. 7MCCh. 27 - Prob. 8MCCh. 27 - Prob. 9MCCh. 27 - Prob. 10MCCh. 27 - Prob. 11MC
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- Suppose that the U.S. firm Halliburton buys construction equipment from the Japanese firm Komatsu at a price of ¥300 million. The equipment is to be delivered to the United States and paid for in one year. The current exchange rate is ¥100 = $1. The current interest rate on one-year U.S. Treasury bills is 6%, and on one-year Japanese government bonds the interest rate is 4%. a. If Halliburton exchanges dollars for yen today and invests the yen in Japan for one year, it will need $ to exchange today in order to have ¥300 million in one year. (Round your response to the nearest dollar)arrow_forwardSuppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw actually receive after it exchanged yen for U.S. dollars?arrow_forwardSuppose one year ago, Hein Company loan payables outstanding in British pound valued at 440,000 pounds. The exchange rate for dollars to pounds was 1£ = 1.75 U.S. dollars. This year the exchange rate is 1£ = 1.45 U.S. dollars. Heinz loan payables in Britain is still valued at 440,000 pounds. What is the gain (+) or loss (-) in loan payables value in U.S. dollars as a result of the change in exchange rates?(Please show work)arrow_forward
- Gilbert Company, and MNC that has a subsidiary in Mexico, wants to figure out the maximum one-quarter loss due to a potential decline in the Mexican peso's value. Assume that Gilbert believes the expected percentage change in the Mexican peso is -1% during the next quarter, the maximum one-quarter loss is about 1.65 standard deviations away from the expected percentage change in the US. dollar, and that Gilbert estimated the standard deviation of exchange rate movements of the Mexican peso to be 6 percent over the next 40 quarters. Based on these assumptions, Gilbert's maximum expected one quarter loss due to its transaction exposure in Mexican pesos over the next quarter is: O S% O 10.9% O 10.9%arrow_forwardBank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. Exposure b. Return if dollar appreciates C. Return if dollar depreciates Appreciation 10.440 % 32.440 %arrow_forwardLast year, the exchange rate between the Korean won and the US dollar was KWN 1020 = USB 1. This year, the exchange rate is KWN 1150 =USB 1 . Has the Korean won appreciated or depreciated over the past year? Explain.arrow_forward
- Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 130.5 million yen, when the exchange rate was 140.0 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw actually receive after it exchanged yen for U.S. dollars? O a. $676,165.80 O b. $845,207.25 O c. $1,039,604.92 O d. $659,261.66 O e. $1,048,056.99arrow_forwardSuppose you are a U.S. investor who is planning to invest $845,000 in Mexico. Your Mexican investment gains 10.6 percent. If the exchange rate moves from 12.8 pesos per dollar to 13.1 pesos per dollar over the period, what is your total return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)arrow_forwardAnswer the question that give You are the CEO of a Mexican company that took out a dollar-denominate loan from an American bank one year ago when the peso-dollar exchange rate was 10 pesos per dollar. You borrowed $100,000 at 8% interest and promised to repay the entire balance and interest in one payment at the end of the year.the current exchange rate is 9.5 pesos per dollar .what effective pesos- denominated rate of interest did you pay for the loan.arrow_forward
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