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Argentina currency devaluation

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Reference no: EM133041152

Argentina Currency Devaluation

A long-simmering conflict between Argentina and the United Kingdom over the sovereignty of the Falkland Islands has begun to escalate. The UK has announced its intention to begin oil exploration on the island. The Argentine government has protested the UK's right to do so. The conflict has reignited tensions going back to the 1982 war between the two countries over the Falkland Islands. Because of the escalating tension, many investors are moving their money out of Argentine Pesos and into more stable currencies. This capital flight has caused the Argentine Peso to drop on foreign exchange markets.

Contribution after Marketing in Argentina for the period was 21% of sales (see Exhibit 2). Your goal is to maintain this percentage.

Exhibit 1: Exchange Rates

 

Home Dollar ($) 

Arg. Peso (ARS) 

Bra. Real (BRL) 

Chi. Peso (CLP) 

Mex. Peso (MXN) 

Peru Sol (PEN) 

Ven. Bolivar (VEB) 

Home 

 

4.2974

 1.9376

518.13 

12.2699

2.9386

5.6786

Argentina 

0.2327 

 

0.4509

120.57

2.8552 

0.6838

1.3214

Brazil 

0.5161 

2.2179 

 

267.41

6.3325

1.5166

2.9307

Chile 

0.0019 

0.0083 

0.0037 

 

0.0237 

0.0057

0.011

Mexico 

0.0815 

0.3502 

0.1579 

42.23 

 

0.2395

0.4628

Peru 

0.3403 

1.4624 

0.6594 

176.32 

4.1755 

 

1.9324

Venezuela 

0.1761 

0.7568

0.3412

91.24

2.1607

0.5175

 

Exhibit 2: Argentina Contribution after Marketing

 

 

ARS

%

Unit sales

46

 

 

Manufacturer Sales 

 

325.9

100%

cost

 

183.3

40%

Gross Margin

 

142.6

44%

 

 

 

 

Total Marketing

 

73.3

23%

 

 

 

 

Contribution after Marketing

 

69.3

21%

Question:

Your group is currently operating in Argentina. AllStar management is concerned to what extent the Argentine Peso will be devalued. 

1. They want to examine two scenarios where the currency drops 15% and 25%. Currently, the exchange rate is 4.2974 Pesos to Dollars (see Exhibit 1). 

2. How would the devaluation of the Argentine Peso affect your contribution to the home currency ($)? 

3. How much more sales revenue would be needed in Argentina to maintain your current contribution?

Reference no: EM133041152

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