Suppose your firm does business in Mauritius. Business done in Mauritius is conducted in Mauritian Rupee (MUR). The spot rate of the Mauritian Rupee is USD .037/MUR. Some expect it to hold into next year. Next years projected cash flows follow:

Country

US (USD millions)

Mauritius (MUR millions)

Sales

83.0

165.0

COGS

5.9

871.5

Expenses

31.0

51.5

Interest

6.5

0

q1: Your firm's primary economic exposure is to a -

A- Strong MUR

B-

Weak MUR

C-

Weak USD

D- Your firm has no Economic Exposure

q2: Suppose you, however, believe the Mauritian Rupee will DEPRECIATE against the USD by 15% over the next year. If this indeed happens, by approximately how much (in USD) will your firms cash flow change from the projection?

A -USD 4.2 Million

B	USD 24.7 Million

C	- USD 3.9 Million

D

- USD 11.3 Million

q3- Now suppose you have a colleague who believes in PPP between the US and Mauritius. If inflation is 7% in Mauritius and -0.5% in the US, what is your approximate projected cash flow in the next year (in USD)?

A-USD 39.6 Million

B-USD 26.0 Million

C-USD 13.5 Million

D- USD 11.2 Million