As the financial manager for a large multinational corporation (MNC), you have b
ID: 2726764 • Letter: A
Question
As the financial manager for a large multinational corporation (MNC), you have
been asked to assess the firm’s economic exposure. The two major currencies, other
than the U.S. dollar, that affect the company are the Mexican peso (MP) and the British
pound (£). You have been given the projected future cash flows for next year:
Currency
Total inflow
Total outflow
British pounds
£17,000,000
£11,000,000
Mexican pesos
MP 100,000,000
MP 25,000,000
The current expected exchange rate in U.S. dollars with respect to the two currencies
is as follows:
Currency
Exchange rate
British pounds
$1.66 per pound
Mexican pesos
$0.10 per peso
To Do
Create a spreadsheet to do the following:
a. Determine the net cash flows for both the Mexican peso and the British pound.
b. Determine the net cash flow as measured in U.S. dollars. It will represent the
value of the economic exposure.
c. If the movements in Mexican Peso and the British Pound are highly correlated, how will this affect the company’s degree of economic exposure?
As the financial manager for a large multinational corporation (MNC), you have
been asked to assess the firm’s economic exposure. The two major currencies, other
than the U.S. dollar, that affect the company are the Mexican peso (MP) and the British
pound (£). You have been given the projected future cash flows for next year:
Currency
Total inflow
Total outflow
British pounds
£17,000,000
£11,000,000
Mexican pesos
MP 100,000,000
MP 25,000,000
The current expected exchange rate in U.S. dollars with respect to the two currencies
is as follows:
Currency
Exchange rate
British pounds
$1.66 per pound
Mexican pesos
$0.10 per peso
To Do
Create a spreadsheet to do the following:
a. Determine the net cash flows for both the Mexican peso and the British pound.
b. Determine the net cash flow as measured in U.S. dollars. It will represent the
value of the economic exposure.
c. If the movements in Mexican Peso and the British Pound are highly correlated, how will this affect the company’s degree of economic exposure?
Explanation / Answer
a.
b.
Statement of net cash flows Currency Total Inflow Total Outflow Net Cash flow British Pounds £ 17,000,000 £ 11,000,000 £ 6,000,000 Mexican Pesos MP 100000000 MP 25000000 MP 75000000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.