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Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.

a. What is the value of its holdings, based on U.S. dollars, at year-end? (Hint: Multiply $170,000 times 1.12 and then multiply the resulting value by 76 percent.)

Short Answer

Expert verified

The year-end value of the holding will be $144,614.

Step by step solution

01

Information provided in question

Value of 240,000 reals in 2010 = $170,000

Interest drawn by the funds = 12%

Percentage decrease in value of real against dollars = 24%

02

Calculation of the value of the holdings

The value of the holdings at year-end will be $144,614.

Spotrate=DollarsReals=170,000240,000=0.7084

Year-endrate=Spotrate×(1-Decreaseinvalueofreal)=0.7084×(1-0.24)=0.538

Depositinrealafter1year=Initialdeposit×(1+Interestrate)=240,000×(1+0.12)=268,800Real

Year-endvalueofholding=Valueofdepositatyear-end×Year-endrate=268,800×0.538=$144,614

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Most popular questions from this chapter

Briefly discuss three types of lender control used in inventory financing.

Lear Inc. has \(840,000 in current assets, \)370,000 of which are considered permanent current assets. In addition, the firm has \(640,000 invested in fixed assets.

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a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear’s earnings before interest and taxes are \)240,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent.

Why are Treasury bills a favorite place for financial managers to invest excess cash?

Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows:

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May

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June

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