Find exposure to exchange rate risk

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Reference no: EM133152355

Duolingo Inc. is a U.S. firm that operates a language institute in Spain. This business teaches Americans who want to learn the Spanish. Duolingo Inc charges tuition to the American students in U.S. dollars, and expects that its tuition revenue in USD Will remain stable over each of the next tive vears.

Duolingo's total expenses for this business project are as follows:

Classroom rent in Barcelona and makes a large rent payment each month in euros. Payroll of Spanish citizens as full-time instructors and pays their salary in euros.

Duolingo expects that its euro-denominated expenses to be stable over each of the next five years If the euro appreciates against the dollar over time, should this have a favorable erect, an unfavorable effect, or no effect on the value of Duolingo Inc.?

Duolingo plans to borrow funds to support its expansion in the U.S. The interest rate in Spain are presently lower than that of the U.S. If Duolingo obtains a loan denominated in Euro to support its expansion in the U.S, will the borrowing of Euro increase, decrease or have no effect on its exposure to exchange rate risk?

Reference no: EM133152355

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