If Nominal Interest Rates Are 5% in the United States

question 49

Multiple Choice

If nominal interest rates are 5% in the United States and 8% in Mexico,you should convert the expected cash flows on your Mexican project into US dollars:

• A) by assuming that the Mexican peso will appreciate by about 3% a year.
• B) by assuming that the Mexican peso will depreciate by 8% a year.
• C) by assuming that the dollar will appreciate by 5% a year.
• D) by assuming that the Mexican peso will depreciate by about 3% a year.

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Definitions:

Accumulation

The process of gradually gathering or increasing amounts of something over time.

Inventory

The stock of goods or materials that a business holds at any given time, including raw materials, work-in-process, and finished goods.

Vendor-Managed Inventory

A replenishment strategy where the supplier is responsible for maintaining the inventory levels of their products at the customer's location.

Outsourcing

The business practice of hiring external vendors to perform services or produce goods that were previously handled internally, often to reduce costs or focus on core competencies.