You are the vice president of International InfoXchange, headquartered in Chicag

Question

You are the vice president of International InfoXchange, headquartered in Chicago, Illinois. All shareholders of the firm live in the United States. Earlier this month you obtained a loan of $5million Canadian dollars from a bank in Toronto to finance the construction of a new plant in Montreal. At the time the loan was received, the exchange rate was $0.92 to the Canadian dollar. By the end of the month, it has unexpectedly dropped to $0.82. Has your company made a gain or loss as a result, and by how much?

Explanation / Answer

Ans: Amount received in US Dollar:

                  Before Rate Change = $ 5000000 x 0,92 = 4600000 $

                  After Rate Change = $ 5000000 x0.82 = 4100000 $

        Gain = $(4600000-4100000)

                  = $ 500000

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