You are the CFO of a U.S. firm whose wholly owned subsidiary in Mexico manufactures component parts for your U.S. assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30% against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take? Please apply the concepts we have considered in these two chapters. How does the appreciation or depreciation of a currency impact exchange? Do you think it will impact employment levels? Do you think it will or should impact trade agreements? Should any of these considerations impact the immediate action your take in the above scenario?
