The Vaderson Forecasting Associates sells a broad range of economic forecasting services to businesses and government agencies. One of its primary products is the Vaderson Exchage Rate Seer, a model that forecasts future spot exchange rates. Finley, Incorporated, a maker of and exporter of Eightin Blue Hen paraphernalia, has just received a large order from Kruse, AG, a large Swiss retailing chain. Delivery of the merchandise would occur in 2 years, and Finley wishes to determine the price in Swiss francs (CHF) to charge for the order. If the items were being sold for delivery today, Finley would want to receive $1.4 million, variable Costs and make an an amount that would recover all acceptable contribution to overhead and profit. The current exchange rate between the dollar and the Swiss franc is $0.66 / CHF. Finley expects that its (dollar) costs will rise at about 3 percent per year over the coming 2 years and would like to recover these cost increases in proportional increases in the contract price. The annual yield on 2-year Treasury bonds is 5.5 percent in the United States. Similar risk percent annually in Switzerland. bonds sell to yield 4.5 Vaderson forecasts that the spot rate exchange between the $ and the CHF will be $0.64 CHF. Question: If you had to make a recommendation regarding the pricing of this order, what is the best estimate of the price in CHF you can recommend that the management charge if it wants to just cover its costs and profit objectives

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 9P

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The Vaderson Forecasting Associates sells a broad range of economic forecasting services to businesses and government agencies. One of its primary products is the Vaderson Exchage Rate Seer, a model that forecasts future spot exchange rates. Finley, Incorporated, a maker of and exporter of Eightin Blue Hen paraphernalia, has just received a large order from Kruse, AG, a large Swiss retailing chain. Delivery of the merchandise would occur in 2 years, and Finley wishes to determine the price in Swiss francs (CHF) to charge for the order. If the items were being sold for delivery today, Finley would want to receive $1.4 million, variable Costs and make an an amount that would recover all acceptable contribution to overhead and profit. The current exchange rate between the dollar and the Swiss franc is $0.66 / CHF. Finley expects that its (dollar) costs will rise at about 3 percent per year over the coming 2 years and would like to recover these cost increases in proportional increases in the contract price. The annual yield on 2-year Treasury bonds is 5.5 percent in the United States. Similar risk percent annually in Switzerland. bonds sell to yield 4.5 Vaderson forecasts that the spot rate exchange between the $ and the CHF will be $0.64 CHF. Question: If you had to make a recommendation regarding the pricing of this order, what is the best estimate of the price in CHF you can recommend that the management charge if it wants to just cover its costs and profit objectives?

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