Forecasting Cash Flows and Hedging Decision Virginia Co. has subsidiaries in both Hong Kong and Thailand. Assume that the Hong Kong dollar (HKS) is pegged at $0.13 per Hong Kong dollar and will remain pegged. The Thai baht fluctuates against the U.S. dollar and is presently worth $0.03. Virginia Co. expects that during this year, the U.S. inflation rate will be 2 percent, the Thailand inflation rate will be 11 percent, and the Hong Kong inflation rate will be 3 percent. The firm expects that purchasing power parity will hold for any exchange rate that is not fixed (pegged). Virginia Co. will receive 10 million Thai baht and 10 million Hong Kong dollars at the end of one year from its subsidiaries.
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