In 2011, China experienced an inflation rate of 11 percent against 1 percent in the United States, whereas the renmimbi appreciated from RMB 6. 7 to RMB 6. 3 = $1 during the same period. Walmart, the U.S.

retailer, has large operations in China, sourcing 70 percent of the products it sells in China from local suppliers with the remainder being primarily imported from the United States.

a. How is Walmart’s dollar profit impacted by the change in the real value of the Chinese currency?

b. Should Walmart refinance a US$1 billion revolver loan currently priced in US$ at 4 percent in RMB at 7 percent?