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Exposure to exchange risk

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2. Midwestern Bank has lent $10 million to finance an equipment sale to Thailand by Lasertech, a major exporter located in Michigan. Both loans are priced in U.S. dollars.

a. Is Midwestern's loan to Lasertech exposed to exchange risk? Explain.

b. Suppose Midwestern has lent money to Lasertech secured by the general credit of the company. Are these loans exposed to exchange risk? Explain.

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a. Is Midwestern's loan to Lasertech exposed to exchange risk? Explain.

The loan is exposed to exchange risk. If the US $ appreciates the cost to the Thai importer will increase and so the risk of default by the Thai importer will increase. If there is default in ...

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