The dollar value of foreign cash flows remitted to a U. S. parent a. is normally easy to forecast because foreign cash flows can be fully hedged with currency swaps. b. is boosted during periods in which the dollar is strong against foreign currencies. c. has no impact on the multinational project's net present value. d. is normally very difficult to forecast

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Emilie Castaneda

Business

18 September, 17:28

The dollar value of foreign cash flows remitted to a U. S. parent a. is normally easy to forecast because foreign cash flows can be fully hedged with currency swaps. b. is boosted during periods in which the dollar is strong against foreign currencies. c. has no impact on the multinational project's net present value. d. is normally very difficult to forecast

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Romeo Zuniga · Answer 1

a. is normally easy to forecast because foreign cash flows can be fully hedged with currency swaps.

Explanation:

A currency swab is an exchange of a liability in one curreency for a liability in another currency. The usual motivation for the use of a currency swap is to replace cash flows scheduled in an undesired currency with cash flows in a desired currency. It involves an agreement between two parties in which they both agree to exchnage tha principal and the interest on a loan in 1 currency for another currency.

While remitting to the US parent, the foreign cash flows have to be converted in US dollar. The value in dollar of these cash flows can be anticipated by entering into currency swaps. The rate of eschange is already decided in swaps, hence value in dollar can easily be forecasted.