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.)

  

  The firm would get $   million (Click to select)moreless  in one year.

Answer 1

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