Consolidated Exposur: Quincy Corp. Would Alaska's cash flows be favorably or unfavorably affected if the Mexican peso depreciates over time?

**** Consolidated Exposur: Quincy Corp. estimates the following cash flows in 90 days at its subsidiaries as follows:

Net Position in Each Currency Measured in
the Parent's Currency (in 1000s of units)

Subsidiary Currency 1 Currency 2 Currency 3
A +200 -300 -100
B +100 -40 -10
C -180 +200 -40

Determine the consolidated net exposure of the MNC to each currency.

**** Money Market Hedge on Receivables: Assume that Stevens Point Co. has net receivables of 100,000 Singapore dollars in 90 days. The spot rate of the S$ is $.50, and the Singapore interest rate is 2% over 90 days. Suggest how the U.S. firm could implement a money market hedge. Be precise.

***** Implications of IRP for Hedging: If interest rate parity exists, would a forward hedge be more favorable, equally favorable, or less favorable than a money market hedge on euro payables? Explain.

******Assessing Economic Exposure.
Alaska Inc. plans to create and finance a subsidiary in Mexico that produces computer components at a low cost and exports them to other countries. It has no other international business. The subsidiary will produce computers and export them to Caribbean islands and will invoice the products in U.S. dollars. The values of the currencies in the islands are expected to remain very stable against the dollar. The subsidiary will pay wages, rent, and other operating costs in Mexican pesos. The subsidiary will remit earnings monthly to the parent.

a. Would Alaska's cash flows be favorably or unfavorably affected if the Mexican peso depreciates over time?

b. Assume that Alaska considers partial financing of this subsidiary with peso loans from Mexican banks instead of providing all the financing with its own funds. Would this alternative form of financing increase, decrease, or have no effect on the degree to which Alaska is exposed to exchange rate movements of the peso?