MNC Cash Flows and Exchange Rate Risk Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final assembled products to the parent, which then sells the products in the United States. The assembled products are invoiced in dollars. The Argentine subsidiary obtains some material from China, and the Chinese exporter is willing to accept Argentine pesos as payment for these materials that it exports. The Argentine subsidiary pays its employees in the local currency (pesos), and finances its operations with loans from an Argentine bank (in pesos). Tuscaloosa Co. has no other international business. If the Argentine peso depreciates against the dollar over time, will that have a favorable, unfavorable, or neutral effect on Tuscaloosa Co.? Briefly explain

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 1, Problem 31QA
Textbook Problem

MNC Cash Flows and Exchange Rate Risk Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final assembled products to the parent, which then sells the products in the United States. The assembled products are invoiced in dollars. The Argentine subsidiary obtains some material from China, and the Chinese exporter is willing to accept Argentine pesos as payment for these materials that it exports. The Argentine subsidiary pays its employees in the local currency (pesos), and finances its operations with loans from an Argentine bank (in pesos). Tuscaloosa Co. has no other international business. If the Argentine peso depreciates against the dollar over time, will that have a favorable, unfavorable, or neutral effect on Tuscaloosa Co.? Briefly explain

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