Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

SiamCement, theBangkok-based cementmanufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy

SiamCement, theBangkok-based cementmanufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The company had been pursuing a very aggressive growth strategy in themid-1990s, taking on massive quantities offoreign-currency-denominated debt(primarily U.S.dollars). When the Thai baht(B) was devalued from its pegged rate of B24.5/$ in July1997, Siam's interest payments alone were over$900 million on its outstanding dollar debt(with an average interest rate of 8.92% on its U.S. dollar debt at thattime). Assuming Siam Cement took out $50 million in debt in June 1997 at 8.92% interest, and had to repay it in one year when the spot exchange rate had stabilized at B41.6/$, what was the foreign exchange loss incurred on thetransaction?

Find: The amount of the foreign exchange loss incurred on the transaction is B

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Investments

Authors: Zvi Bodie, Alex Kane, Alan Marcus

11th Edition

1260288390, 978-1260288391

More Books

Students also viewed these Finance questions