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Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis...

Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the mid-1990s, taking on massive quantities of foreign currency denominated debt (primarily U.S. dollars). When the Thai baht (B.was devalued from its pegged rate of B25.0/$ in July 1997, Siam’s interest payments alone were over $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its U.S. dollar debt at that time). Assuming Siam Cement took out $100 million in debt in June 1997 at 8.40% interest, and had to repay it in one year when the spot exchange rate had stabilized at B42.0/$, what was the foreign exchange loss incurred on the transaction?            million Bahts.   

1072.8  

1132.8  

1539.8

1750.4     

1622.8  

1842.8  
Business   Accounting   
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Answer #1
Loan taken in USD $         100.00
Interest 8.40%
Loan repayment 100*(1+8.40%)
Loan repayment $         108.40
With stable exchange rate @ 25 Bhat per USD 108.40*25
With stable exchange rate @ 25 Bhat per USD          2,710.00
With devalued exchange rate @ 42 Bhat per USD 108.40*42
With devalued exchange rate @ 42 Bhat per USD          4,552.80
Loss due to exchange rate 4552.80-2710
Loss due to exchange rate          1,842.80

So last option is the right answer.

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