Appendix Q

$3$

$$

$*$

$$a

$.$

In the context of

$$

Vision

$2028$

$,$

$$the new management is considering building a new factory in South Korea. The Korean subsidiary will require an initial investment of

$200$

$,$

$000$

m South Korean Won

$($

KRW

$)$

$.$

$$Jasmine can borrow money to finance this investment in the UK market, in France, or in South Korea. Appendix Q

$3$

$$offers information about the borrowing costs in different currencies and an estimation of the future value of FX

$.$

$$Advise which is the best way to finance the Korean factory.

$*$

$$b

$.$

Mr

$.$

$$Jordan considers moving the Chinese factory to South Korea. Assess the risk exposure related to this relocation of production.

$*$

$$c

$.$

The research department of a large financial institution provided inflation expectations for the next five years. According to the forecasts, UK will have

$1\mathrm{.}75$

$\%$

$$more inflation than France and

$3\mathrm{.}5$

$\%$

$$higher inflation than South Korea. On the basis of this new evidence, would you reconsider your proposal with regard to financing the Korean factory? Explain your answer.

$$

Initial investment

$($

KRW

$)200$

$,$

$000$

Interest rate in UK

$(5$

$-$

year loan

$)0\mathrm{.}09$

Interest rate in South Korea

$(5$

$-$

year loan

$)0\mathrm{.}15$

Interest rate in France

$(5$

$-$

year loan

$)0\mathrm{.}12$

Spot exchange rate: KRW per GBP

$2$

$,$

$000\mathrm{.}00$

Expected appreciation of GBP in relation to KRW

$4$

$\%$

$$per annum

Spot exchange rate: EUR per GBP

$1\mathrm{.}18$

Expected appreciation of GBP in relation to EUR

$3$

$\%$

$$per annum

Jasmine has well established export markets but if the Board approves Vision

$2028$

$,$

$$it will begin to enter new markets abroad.

$*$

$$d

$.$

If Jasmine wants to borrow long

$-$

term funds to support its new foreign operations, what options does it have available to it

$?$

$*$

$$e

$.$

What finance methods might Jasmine adopt to satisfy itself that it will be paid for shipping goods to new importers?