1. One point of concern for you is the tradeoff between the higher interest rates in Thailand and the delayed conversion of baht into dollars. Explain what this means.
2. If the net baht received from the Thailand operation are invested in Thailand, how will U.S. operations be affected? (Assume that Blades is currently paying 10 percent on dollars borrowed and needs more financing for its firm.)
3. Construct a spreadsheet that compares the cash flows resulting from two plans. Under the first plan, net baht-denominated cash flows (received today) will be invested in Thailand at 15 percent for a one-year period, after which the baht will be converted to dollars. The expected spot rate for the baht in one year is about $0.022 (Ben Holt’s plan). Under the second plan, net baht-denominated cash flows will be converted to dollars immediately and invested in the U.S. for one year at 8 percent. For this question, assume that all baht-denominated cash flows are due today. Does Holt’s plan seem superior in terms of dollar cash flows available after one year? Compare the choice of investing the funds versus using the funds to provide needed financing to the firm.
