International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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A Brazillian coffee exporter has found a market for his coffee to the tune of 1,800,000 Euros. At the time of sale, the spot rate between Kenya shillings and Euros was ksh 126/Euro. The payment was expected after one month when the deal would be concluded. The interest rates in Kenya were 9% while in Germany they were 7%.per annum
Required:
1. Advise the exporter after ascertaining the domestic currency appreciation or depreciation.
2. Suggest plausible non-financial hedging techniques to shield the exporter
Jupiter Engine Company has recently negotiated contracts to sell 1 of its X-model engines to a customer in England and 1 of its Z-model engines to a customer in Germany. Jupiter will be paid in 3 months in the currency of its customers.
The engine selling prices are:
X-model 200,000 British pounds
Z-model 265,500 Euros
Jupiter’s costs to produce each engine in US dollars:
X-model $225,000
Z-model $270,000
Today’s exchange rates:
GBpound/US$ 1.20
US$ /Euro 0.90
Calculate Jupiter’s profits from each engine sale, based on today’s exchange rates.
(Profit = Price in US dollars - costs in US dollars)
Jupiter will not actually be paid for 3 months. If they choose not to hedge themselves against currency fluctuations by locking in today’s rate, they will either make less or more profit based on changes in the exchange rate.
Would they prefer to see the US dollar get STRONGER or WEAKER during this period?…
An importer in Oman wants to exchange OMR to EUR which he will be Paying to an exporter after 3 months. He goes to a forex dealer in Oman who provides the following quotes for OMR/EUR
Spot rate =0.460727-927
3 months rate = 0.480827-997
How much OMR will the importer pay in to receive 75000 Euros after 3 months?
a.
All the options are wrong
b.
34569.53
c.
36062.03
d.
34554.53
e.
36074.78
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