A U.S. firm is expecting cash flows of 45 million Mexican pesos and 60 million Indian rupees. The current spot exchange rates are $1 = 11.738 pesos and $1 = 45.212 rupees. Assume these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.134 pesos and $1 = 44.083 rupees.
What is the difference in dollars received that was caused by the delay?
Answer needed: The firm would get $ million more in one year. |
Value of Cash flows in USD today:
Convert 45 M Mexican Pesos = 45 M / 11.738 = USD 2.8337 M
COmvert 60 M Rupees = 60 M / 45.212 = USD 1.3271 M
Value of Cash flows today = USD 5.1608 M
Value of Cash flows after 1 Year:
Convert 45M Mexican Pesos = 45 M / 11.134 = USD 4.0417 M
COmvert 60 M Rupees = 60 M / 44.083 = USD 1.3611 M
Value of Cash flows after 1 Year = USD 5.4028 M
DIfference due to delay = Vakue after 1 year - Value today
= USD 5.4028 M - USD 5.1607 M
= USD 0.2420 M
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