You are the CFO of a US firm whose wholly owned subsidiary i

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 percent against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take?

Solution

Peso is about to depreciate means a same amount of dollars could buy more peso.Depreciation causes a rise in exports because the mexican commodities would become cheaper.

I,therefore,would aim at increasing the production.Export demand is estimated to rise.Sales would rise and therefore,revenue would rise.A higher revenue would also allow me to repay the bank borrowings.