week 6 assignment 24

PLEASE NOTE THAT THIS ASSIGNMENT WILL BE TURNED IN THROUGH TURNITIN, THEREFORE IT CANNOT BE PLAGIARIZED!

Read Chapters 19, 20 & 21

Answer the following questions using the “TURNITIN” link directly below these instructions. Late work is not accepted. Refer to the Class Schedule for due dates.

Chapter 19

Your

business provides CDs on learning English that compliment the teaching

that is provided by your employees based in Mexico. Assume that you

decide to capitalize on these CDs by selling them to a large retail

store based in Mexico. The CDs are not as effective without the

teaching, but can be useful to individuals who want to learn the basics

of the English language. You do not want to take the risk of sending a

case of CDs to the retail store unless you can be sure of receiving

payment. Explain how you can ensure payment for the CDs.

Chapter 20

If

you decide to implement a major marketing campaign in Mexico , you will

incur high expenses in Mexican pesos. You would need to finance the

cost of your marketing. You could either borrow dollars at a low

interest rate and convert them to Mexican pesos to cover the cost, or

borrow Mexican pesos to cover the cost. You would expect to pay off the

loan on a monthly basis over the next year with the use of a portion of

the revenue you generate from your business in Mexico.

a. Would your business be more exposed to exchange rate risk if you borrow dollars or Mexican pesos?

b.

Explain how you would make the decision to borrow dollars versus

Mexican pesos. What is the key factor (other than the interest rate of

each currency) that will determine whether you should borrow dollars or

Mexican pesos.

Chapter 21

Assume that decide not to

implement the marketing campaign that you considered in the previous

chapter. You may pursue it next year instead and will attempt to invest

some of your profits this year in money market investments, and then use

this money to cover the campaign next year. You can retain your profits

earned this year by investing them in a Mexican bank where interest

rates are high. Alternatively, you could invest the profits in a

dollar-denominated bank account. That is, you could convert your Mexican

peso profits to dollars periodically and accumulate the dollars over

the year. At the end of the year, you could convert the dollars back to

Mexican pesos, so that you can pay for the marketing campaign. Explain

how you could decide between these two alternatives.

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