A U.S. firm is expecting cash flows of 65 million Mexican pesos and 80 million I
ID: 2656028 • Letter: A
Question
A U.S. firm is expecting cash flows of 65 million Mexican pesos and 80 million Indian rupees. The current spot exchange rates are $1 = 11.746 pesos and $1 = 45.216 rupees. Assume these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.142 pesos and $1 = 44.087 rupees.
What is the difference in dollars received that was caused by the delay? (Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.)
A U.S. firm is expecting cash flows of 65 million Mexican pesos and 80 million Indian rupees. The current spot exchange rates are $1 = 11.746 pesos and $1 = 45.216 rupees. Assume these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.142 pesos and $1 = 44.087 rupees.
Explanation / Answer
Current value of receivables in $ is:
Peso: 1$ = 11.746 peso
=> ?$ = 65,000,000 peso
=> 65,000,000 peso = (65,000,000/11.746)$ = $5,533,798.74
Rupees: 1$ = 45.216 rupees
=> ?$ = 80,000,000 rupees
=> 80,000,000 rupees = (80,000,000/45.216)$ = $1,769,285.21
Total Receivables = 5,533,798.74 + 1,769,285.21 = $7,303,083.95
Expected value of receivables in $ is:
Peso: 1$ = 11.142 peso
=> ?$ = 65,000,000 peso
=> 65,000,000 peso = (65,000,000/11.142)$ = $5,833,782.09
Rupees: 1$ = 44.087 rupees
=> ?$ = 80,000,000 rupees
=> 80,000,000 rupees = (80,000,000/44.087)$ = $1,814,593.87
Total Receivables = 5,833,782.09 + 1,814,593.87 = $7,648,375.96
Difference in receivables = $7,648,375.96 - $7,303,083.95 = $345,292.01
Hence, answer = $0.345 mil
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