A U.S. firm is expecting cash flows of 15 million Mexican pesos and 20 million Indian rupees. The current spot exchange rates are: $1 = 11.501 pesos and $1 = 45.525 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.265 pesos and $1 = 45.005 rupees, then what is the difference in dollars received that was caused by the delay?

Question

Quizplus · Accepted Answer

The difference in dollars received that was caused by the delay is $0.03 million more. This is because the expected spot rate for the Mexican peso is lower in one year, which means that the U.S. firm will receive more dollars for each peso it receives. The expected spot rate for the Indian rupee is also lower in one year, but the U.S. firm is receiving more rupees, so the impact of this change is smaller.

A US Firm Is Expecting Cash Flows of 15 Million Mexican