BP and Mexicana Oil 1995. BP (UK) and Mexicana Oil (Mexico) severed a long-term joint venture in 1993, with Mexicana buying out BP with $75 billion in cash and a 30% interest (equity interest) in Mexicana itself. Mexicana financed a large part of the buyout by borrowing heavily. The following year, November 1994, BP received a dividend on its ownership interest in Mexicana of MXN 30 billion. But Mexicana’s performance had been declining, as was the Mexican peso. The winter of 1994–1995 in Europe was a relatively mild one and Europe’s purchases of Mexicana’s oil output had fallen, as had the price of oil. Mexicana’s total sales were down, and the peso had clearly fallen dramatically (see previous table). And to add debt to injury, Mexicana was due to make a payment of USD 22.5 billion in 1995 on its debt from the BP buyout.

a. Assuming a spot rate of MXN 3.443 = 1.00 USD in November 1994, how much was the dividend paid to BP in U.S. dollars?

b. If Mexicana were to pay the same dividend in January 1995, and the spot rate at that time was MXN 6.30 = 1.00 USD, what would BP receive in U.S. dollars?

c. If the combination of Western trade tariffs against Mexico and lower oil prices truly sent the Mexican economy into recession, and the spot rate was MXN 7.50 = 1.00 USD in November 1995, what might BP’s dividend be in November 1995?

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Forecasting the Pan-Pacific Pyramid: Use the following data in answering problems 9.11-9.16. Gross Domestic Product Unemployment Rate Industrial Production Forecast Forecast Country Australia Latest Qtr Qtr* 2007e 2008e Recent Qtr Latest 4.3% 3.8% 4.1% 3.5% 4.6% 4.2% Japan 1.6% -1.2% 2.0% 1.9% 4.3% 3.8% United States 1.9% 3.8% 2.0% 2.2% 1.9% 4.7% Consumer Prices Interest Rates Forecast 3-month 1-yr Govt Country Year Ago Latest 2007e Latest Latest Australia 4.0% 2.1% 2.4% 6.90% 6.23% Japan 0.9% -0.2% 0.0% 0.73% 1.65% United States 2.1% 2.8% 2.8% 4.72% 4.54% Trade Balance Current Account Current Units (per US$) Last 12 mos Last 12 mos Forecast 07 Country (billion $) (billion $) (% of GDP) Oct 17th Year Ago Australia Japan -13.0 98.1 -$47.0 -5.7% 1.12 1.33 $197.5 4.6% 117 119 United States -810.7 -$793.2 -5.6% 1.00 1.00 Source: Data abstracted from The Economist, October 20, 2007, print edition. Unless otherwise noted, percentages are percentage changes over one year. Rec Qtr = recent quarter. Values for 2007e are estimates or forecasts.