Elan Pharmaceuticals. Elan Pharmaceuticals, a U.S.- based multinational pharmaceutical company, is evaluating an export sale of its
Question:
Elan Pharmaceuticals. Elan Pharmaceuticals, a U.S.-
based multinational pharmaceutical company, is evaluating an export sale of its cholesterol reduction drug with a prospective Indonesian distributor.
The purchase would be for 1,650 million Indonesian rupiah (Rp), which at the current spot exchange rate of Rp9,450/$ translates into nearly
$175,000. Although not a big sale by company standards, company policy dictates that sales must be settled for at least a minimum gross margin, in this case, a cash settlement of $168,000. The current 90-day forward rate is Rp9,950/$. Although this rate appeared unattractive, Elan had to contact several major banks before even finding a forward quote on the rupiah. The consensus of currency forecasters at the moment, however, is that the rupiah will hold relatively steady, possibly falling to Rp9,400/$ over the coming 90 to 120 days.
Analyze the prospective sale and make a hedging recommendation.
Step by Step Answer:
Multinational Business Finance
ISBN: 9781292270081
15th Global Edition
Authors: David Eiteman, Arthur Stonehill, Michael Moffett