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If the net baht received from the Thailand operation are invested in Thailand, how will U.S....

If the net baht received from the Thailand operation are invested in Thailand, how will U.S. operations be affected? (Assume that Blades is currently paying 10 percent on dollars borrowed and needs more financ- ing for its firm.)

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If the cash flows which are generated in the Thailand and are all used to support U.S. operations, then the company will have to borrow the additional funds in the U.S. @ 10 percent. For eg, if the baht currency will depreciate by 5 percent over the upcoming year, the Thai investment will render a yield of roughly 2.5% percent, while the company pays 5 percent interest on the funds whihc are borrowed in the U.S. As the funds would have been converted into $ immediately and can be used in the U.S., the baht should be converted into dollars today to reduce the additional interest cost that would be incurred from this action.

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