This week's homework relates to Chapter 19, "Financing International Trade," Chapter 20, "Short-Term Financing," and Chapter 21, "International Cash Management."

Instructions

Please respond to the following:

1. What organization could Blades contact in order to insure its sales to Thai retailers? What type of insurance do these organizations provide?
2. Break-even Financing
   • Providence Co. needs dollars. Assume that the local one‑year loan rate is 15 percent, while a one‑year loan rate in euros is 7 percent.
     • By how much must the euro appreciate to cause the loan in euros to be more costly than a U.S.-dollar loan?
3. Break-even Financing
   • Lakeland, Inc., is a U.S.‑based MNC with a subsidiary in Mexico. Its Mexican subsidiary needs a one‑year loan of 10 million pesos for operating expenses. Since the Mexican interest rate is 70 percent, Lakeland is considering borrowing dollars, which it would convert to pesos to cover the operating expenses.
     • How much would the dollar have to appreciate against the peso to cause such a strategy to backfire? (The one‑year U.S. interest rate is 9 percent.)
4. Investing Strategy
   • Tallahassee Co. has $2 million in excess cash that it has invested in Mexico at an annual interest rate of 60 percent. The U.S. interest rate is 9 percent. How much would the Mexican peso have to depreciate to cause such a strategy to backfire?