FIN 435 Module 8 Chapter 10 Homework

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Problem 3 Siam Cement, the Bangkok-based cement manufacturer, suffered enormous losses with the coming of the Asian crisis in 1997. The Company had been pursuing a very aggressive growth strategy i ... n the mid1990’s, taking on massive quantities of foreign-currency-denominated debt (primarily U.S. dollars) When the Thai baht (B) was devalued from its pegged rate of B25.0/$ in July 1997, Siam’s interest payments alone were over $900 million on its outstanding dollar debt (with an average interest rate of 8.40% on its U.S dollar debt at that time). Assuming Siam Cement took out $50 million in Debt in June 1997 at 8.40% interest, and had to repay it in one year when the spot exchange rate had stabilized at B42.0/$ what was the foreign exchange loss incurred on the transaction [Show More]

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