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Essay / Research Paper Abstract
This is a 3 page paper that provides an overview of depreciation. The impact of currency depreciation on foreign direct investments is explored. Bibliography lists 1 source.
Page Count:
3 pages (~225 words per page)
File: KW60_KFmeximf.doc
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Unformatted sample text from the term paper:
a "global marketplace", the economic reality is that the world still makes use of an abundance of different currencies, which are valuated in differing ways. The relative parity between two
currencies can heavily influence the attractiveness of foreign direct investments, either enhancing their lucrative appeal to investing nations, or undermining that appeal altogether. This risk is especially apparent when a
developed country invests in a developing nation in order to capitalize upon currency disparity to increase profits. In order to understand the true implications such a risk entails, it
may be instructive to consider a hypothetical scenario. Presume that one has been appointed the chief financial officer of a major firm in the United States which operates in both
the US and in Mexico. While the companys assembly operations take place primarily in the United States, a wholly owned subsidiary in Mexico manufactures the majority of the component parts
which are used in the assembly process. Because this subsidiary has been financed by US bank loans, it would be quite distressing for the hypothetical CFO to receive the news
that the Mexican peso (the countrys national currency) will depreciated by as much as 30% when compared with the US dollar over the next twelve months. At such a juncture,
the CFO would recognize that the financial balance that made the financing of a Mexican subsidiary attractive in the first place is undergoing a major change, and that he or
she must take immediate action. This paragraph helps the student assess the best course of action for the CFO. That said, just because the situation is changing in Mexico, it
is not necessarily changing for the worse. In order for the CFO to make the appropriate decision, he or she must have a working knowledge of currency valuation and exchange
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