Convert to pesos to cover the operating expenses

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Break-even Financing. Lakeland, Inc., is a U.S.-based MNC with a subsidiary in Mexico. Its Mexican subsidiary needs a one-year loan of 10 million pesos for operating expenses. Since the Mexican interest rate is 70 percent, Lakeland is considering borrowing dollars, which it would convert to pesos to cover the operating expenses. By how much would the dollar have to appreciate against the peso to cause such a strategy to backfire? (The one-year U.S. interest rate is 9%.)

Reference no: EM13830595

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