Virginia Co. has subsidiaries in both Hong Kong and Thailand. Assume that the Hong Kong dollar is
Question:
a. Determine the expected amount of dollars to be received by the U.S. parent from the Thai subsidiary in one year when the baht receivables are converted to U.S. dollars.
b. The Hong Kong subsidiary will send HK$1 million to make a payment for supplies to the Thai subsidiary. Determine the expected amount of baht that will be received by the Thai subsidiary when the Hong Kong dollar receivables are converted to Thai baht.
c. Assume that interest rate parity exists. Also assume that the real one-year interest rate in the U.S. is 1.0%, whereas the real interest rate in Thailand is 3.0%. Determine the expected amount of dollars to be received by the U.S. parent if it uses a one-year forward contract today to hedge the receivables of 10 million baht that will arrive in one year.
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