Poblem: Exchange gains and losses, You are the vice president of International InfoXchange, headquartered in Chicago, Illinois. All shareholders of the firm live in U.S. Earlier this month, you obtained a loan of $5M Canadian dollars from a bank in Toronto to finance the construction of a new plant in Montreal. At the time the loan was received, the exchange rate was 0.75 U.S cents to the Canadian dollar. By the end of the month, it has unexpected dropped to 70 cents. Has the company made a gain or loss as a result, and by how much?
Rate of Return discussion:
Should firms require higher rates of return on foreign projects than on identical projects located at home? Explain. Do not forget the effect of foreign rates.