1. Measuring Economic Exposure. Using the following cost and revenue information shown for DeKalb, Inc., determine how the total cash flow in USD would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZ$ = $.50, (2) NZ$ = $.55, and (3) NZ$ = $.60. (Assume U.S. sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects. Please also calculate the economic exposure of the firm.

Forecasted Net Cash Flows: DeKalb Inc.

(in millions of U.S. dollars and New Zealand dollars)

New Zealand

U.S. Business Business

Sales $800 NZ$800

Cost of Materials 500 100

Operating Expenses 300 0

Interest Expense 100 0

Cash Flow $100 NZ$700