The sequence of events surrounding MJ Food's sales to Taj Bakeries, Ltd., was as follows:

a. On what date did MJ Foods first incur transaction exposure?

b. What kind of transaction exposure was this, and how much was the exposure?

c. Could MJ Foods have avoided this exposure?

d. Did the nature of the exposure change on August 22?

e. Did the nature of the exposure change on September 24?

f. Did the nature of the exposure change during October and November?
g. Did the nature of the exposure change on December 24?

Transcribed Image Text:

August 10: August 18: August 22: Taj Bakeries, Ltd., requested a quote from MJ Foods. MJ Foods replied with a quote of Rps88,704,000, derived by multi- plying its dollar price of $2,400,000 by the spot rate of Rps36.96/$, and payable in three months. Taj Bakeries placed a firm order with MJ Foods. September 24: MJ Foods shipped the corn oil by sea and billed Taj Bakeries Rps88,704,000. Sept. Nov. The Indian rupee fell steadily in value from Rps36.96/$ to Rps42.00/$. Newspaper accounts attributed this to the Indian central bank's failure to respond when "the rupee first began to wobble in September." December 24: Taj Bakeries wired Rps88,704,000 to MJ Foods' bank, as specified in the original agreement. By mid-December the rupee had stabilized at Rps42.00/$.