Question
A European company has successfully captured its first export order from a US client and is considering the alternatives for managing its exposure. The price
A European company has successfully captured its first export order from a US client and is considering the alternatives for managing its exposure. The price of the export order is US$600 thousand (invoice denominated in $) and the associated receivable is due in 12 months time. To make the order, the European firm has had to purchase specialist components from a Japanese supplier. The cost of these components is Yen36 million (invoice denominated in Yen) and the associated payable is due in 6 months time. Additionally, the European company is facing the following payments associated with the export order:
Time of Payable Now 6 months time | Amount 000 100 50 |
12 months time | 50 | |
The following sets of Euro-interest rates and spot exchange rates are available: | ||
LIBOR Interest Rates | ||
6-month 3.4% 2.1% 0.90% | 12-month 3.1% 2.2% 0.95% | $ Yen |
Spot Exchange Rates
$/ Yen/ | 0.90 110.0 |
Required: Discuss, describe, calculate with formula, evaluate, and judge the actions the European company can take to manage the exposure. Use the rates exhibited above to evaluate outcomes
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