Question

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 B24.3/$ in July​ 1997, Siam's interest payments alone were over​ $900 million on its outstanding dollar debt​ (with an average interest rate of 8.78% on its U.S. dollar debt at that​ time). Assuming Siam Cement took out$ 50million in debt in June 1997 at 8.78% ​interest, and had to repay it in one year when the spot exchange rate had stabilized atUpper B 42.1 divided by $B42.1/$​ what was the foreign exchange loss incurred on the​ transaction?

The amount of the foreign exchange loss incurred on the transaction is B-------- (Round to the nearest whole​ number.)

Answer 1

Principal paid in USD	$             50,000,000
Interest paid in USD (50000000*8.78%)	$               4,390,000
Total payment	$             54,390,000
Actual cash repaid in Thai baht (54390000*42.1)	2,289,819,000
Expected cash repaid in Thai baht (54390000*24.3)	1,321,677,000
Amount of the foreign exchange loss incurred Thai baht	968,142,000