Problem 6: Intro Bright Lights is a U.S. company with a subsidiary in Mexico. The company expects

Problem 6:

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Intro Bright Lights is a U.S. company with a subsidiary in Mexico. The company expects net income (earnings) of 66 million pesos in Mexico next year. To reduce its translation exposure, the company sells 66 million peso one year forward at a forward rate of $0.046 per peso. The current spot rate is $0.046 per peso. Part 1 Attempt 1/10 for 10 pts. If the peso depreciates over the course of the year such that the weighted average exchange rate is only $0.045 per peso, what is the translation loss (in $ million, absolute value)? 3+ decimals Submit Part 2 Attempt 1/10 for 10 pts. If one year later the spot rate is $0.045 per euro, what is the gain or loss on the forward contract (in $ million)? 3+ decimals Submit Intro Bright Lights is a U.S. company with a subsidiary in Mexico. The company expects net income (earnings) of 66 million pesos in Mexico next year. To reduce its translation exposure, the company sells 66 million peso one year forward at a forward rate of $0.046 per peso. The current spot rate is $0.046 per peso. Part 1 Attempt 1/10 for 10 pts. If the peso depreciates over the course of the year such that the weighted average exchange rate is only $0.045 per peso, what is the translation loss (in $ million, absolute value)? 3+ decimals Submit Part 2 Attempt 1/10 for 10 pts. If one year later the spot rate is $0.045 per euro, what is the gain or loss on the forward contract (in $ million)? 3+ decimals Submit

Answer rating: 100% (QA)

ANSWER Part 1 Translation Loss To calculate the translation loss we need to determine the difference ... View the full answer