1. Longren Corp, a U.S. MNC, is considering investing $25 million in excess cash in Colombia at an annual interest rate of 40 percent. The U.S. interest rate is 8 percent.

(1) By how much would the Colombian peso have to depreciate to cause this strategy to backfire?

(2) What other factors should the U.S. company consider before making this investment?

2. A U.S.-based MNC, invests 15,000,000 Mexican pesos for a one-year period at a nominal interest rate of 15 percent. The spot rate of the peso is $.049 at the time of the investment. The spot rate of the peso in one year is $.041.

(1) Has the peso appreciated or depreciated over the 1-year period?

(2) what is the dollar amount of the initial investment?

(3) what is the dollar value of the investment after one year?