Question

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

B24.524.5​/$

in July​ 1997, Siam's interest payments alone were over​ $900 million on its outstanding dollar debt​ (with an average interest rate of

8.048.04​%

on its U.S. dollar debt at that​ time). Assuming Siam Cement took out

$ 49$49

million in debt in June 1997 at

8.048.04​%

​interest, and had to repay it in one year when the spot exchange rate had stabilized at

Upper B 41.5 divided by $B41.5/$​,

what was the foreign exchange loss incurred on the​ transaction?

Homework Answers

Answer #1

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

USD denominated loanJune1997 Principal to be repaid = $ 49,000,000

USD denominated loanJune1997 Interest to be repaid = $ 49 Million * 8.04% = $ 3,939,600

Total repayment = $ 49,000,000 + $ 3,939,600 = $ 52,939,600

At time loan was acquired, exchange rate was 24.5 Baht = $1, estimated repayments in Baht

= $52,939,600 * 24.5 B/$

= Baht 1,297,020,200 ...(1)

At time of actual payment, exchange rate was 41.5 Baht = $1, actual total repayment in Baht

= $52,939,600 * 41.5 B/$

= Baht 2,196,993,400 ...(2)

Foreign Exchange loss incured on transaction (in Baht denomination) = (2) - (1) = 2,196,993,400 - 1,297,020,200

= Baht 899,973,200

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
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 $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its...
Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis...
Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the mid-1990s, taking on massive quantities of foreign currency denominated debt (primarily U.S. dollars). When the Thai baht (B.was devalued from its pegged rate of B25.0/$ in July 1997, Siam’s interest payments alone were over $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its...
Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis...
Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the mid-1990s, taking on massive quantities of foreign currency denominated debt (primarily U.S. dollars). When the Thai baht (B.was devalued from its pegged rate of B25.0/$ in July 1997, Siam’s interest payments alone were over $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its...
Siam​ Cement, the​ Bangkok-based cement​ manufacturer, suffered enormous losses with the coming of the Asian crisis...
Siam​ Cement, the​ Bangkok-based cement​ manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the​ mid-1990s, taking on massive quantities of​ foreign-currency-denominated debt​ (primarily U.S.​ dollars). When the Thai baht​ (B) was devalued from its pegged rate of B24.9​/$ in July​ 1997, Siam's interest payments alone were over​ $900 million on its outstanding dollar debt​ (with an average interest rate of 7.75​% on its U.S....
Siam​ Cement, the​ Bangkok-based cement​ manufacturer, suffered enormous losses with the coming of the Asian crisis...
Siam​ Cement, the​ Bangkok-based cement​ manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the​ mid-1990s, taking on massive quantities of​ foreign-currency-denominated debt​ (primarily U.S.​ dollars). When the Thai baht​ (B) was devalued from its pegged rate of B25.625.6​/$ in July​ 1997, Siam's interest payments alone were over​ $900 million on its outstanding dollar debt​ (with an average interest rate of 8.398.39​% on its U.S....
Siam​ Cement, the​ Bangkok-based cement​ manufacturer, suffered enormous losses with the coming of the Asian crisis...
Siam​ Cement, the​ Bangkok-based cement​ manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in the​ mid-1990s, taking on massive quantities of​ foreign-currency-denominated debt​ (primarily U.S.​ dollars). When the Thai baht​ (B) was devalued from its pegged rate of B24.3/$ 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....
East Asiatic Company—Thailand. The East Asiatic Company​ (EAC), a Danish company with subsidiaries throughout​ Asia, has...
East Asiatic Company—Thailand. The East Asiatic Company​ (EAC), a Danish company with subsidiaries throughout​ Asia, has been funding its Bangkok subsidiary primarily with U.S. dollar debt because of the cost and availability of dollar capital as opposed to Thai​ baht-denominated (B) debt. The treasurer of​ EAC-Thailand is considering a​ 1-year bank loan for $252,000. The current spot rate is B32.06​/$, and the​ dollar-based interest is 6.72​% for the​ 1-year period. ​ 1-year loans are 11.98​% in baht. a. Assuming expected...
Instruction: Suppose that, as a financial analyst, you are tasked with evaluating Blades, a U.S. manufacturer...
Instruction: Suppose that, as a financial analyst, you are tasked with evaluating Blades, a U.S. manufacturer of roller blades. In the assignment, you provide the chief financial officer (CFO) of Blades a better understanding of the process of government intervention and its impact on Blades’ international business. The company generates most of its revenue and incurs most of its expenses in the United States. However, it has recently begun exporting roller blades to Thailand. You will provide a report that...
Question: A significant increase in inflation in a country causes, a. investors to sell domestic assets...
Question: A significant increase in inflation in a country causes, a. investors to sell domestic assets b. foreign exchange market pressure to depreciate the domestic currency c. currency traders to sell the domestic currency d. all of the above Question 2 Capital flight from a domestic country tends to cause, a. selling of the domestic country's currency b. weakening of the domestic country's currency c. greater difficulty of domestic borrowers in repaying debt denominated in a foreign currency d. all...
Calculate the following: Show all work 1) If a U.S.-based firm borrows €1,500,000 for one year...
Calculate the following: Show all work 1) If a U.S.-based firm borrows €1,500,000 for one year at 5.00% and during the year the euro depreciates from an initial rate of $1.30/€ to $1.10/€, what is the dollar cost of this debt?    Your answer: ________________% (Keep two decimals; Do include the minus sign “-” if your answer is a negative number.) 2) If a U.S.-based firm borrows €1,500,000 for one year at 5.00% and during the year the euro depreciates...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT