1-A US-based multinational corporation (MNC) owns a factory in Mexico and sells products from the factory into the local Mexican market

• The US-based factory located in Mexico does not export products out of Mexico. It sells the products locally within Mexico
• Expected cash flow per day: 1,000,000 MXN
• The US-based factory has to convert the sales from MXN to USD in order to repatriate the funds into a US bank and/or report the sales in USD for tax, legal and reporting purposes
• The exchange rate today is USDMXN 20.0000

If there is a change tomorrow in the exchange rate to USDMXN 16.6667, which of the following is true?

*Tomorrow, the 1,000,000 MXN will convert to more USD and will increase the value of the US company

*Tomorrow, the 1,000,000 MXN will convert to less USD and will decrease the value of the US company

2- On November 25, 2020, the exchange rate between the USD and the Mexican Peso was USDMXN20.0500. The consensus forecast for the U.S. and Mexico inflation rates for the next 1-year period is 2.24% and 2.78%, respectively.

What would you forecast the USDMXN exchange rate to be at around November 25, 2021?

Select one of the following that is nearest to your calculation (may differ very slightly due to rounding):

USDMXN19.0227

USDMXN19.9423

USDMXN20.1583

USDMXN21.1327

3- The above Question discusses Foreign Currency Risk due to timing of making payment some months after booking Accounts Payable. It also applies to timing of receiving payment some months after booking Accounts Receivable.

What type of Foreign Currency Exposure is this?

Foreign Currency Transactional Exposure

Foreign Currency Translational Exposure