Thornton, Inc. needs to invest five million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton would:

Question

Quizplus · Accepted Answer

Thornton needs to invest five million Nepalese rupees in its Nepalese subsidiary and wants to engage in a swap transaction to repay the rupees in one year. Therefore, it should convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate. This will ensure that Thornton receives the full amount of rupees it invested in its Nepalese subsidiary, and it can avoid any potential losses due to fluctuations in the exchange rate over the next year.