Assessment of Future Exchange Rate Movements As the chief financial officer of Blades, Inc., Ben Holt is 1. How are percentage changes in a currency's value pleased that his current system of exporting "Speedos" measured? Illustrate your answer numerically by to Thailand seems to be working well. Blades' primary assuming a change in the Thai baht's value from a customer in Thailand, a retailer called Entertainment value of $.022 to $.026. Products, has committed itself to purchasing a fixed 2. What are the basic factors that determine the value number of Speedos annually for the next three years of a currency? In equilibrium, what is the relationship at a fixed price denominated in baht, Thailand's cur- between these factors? rency. Furthermore, Blades is using a Thai supplier for 3. How might the relatively high levels of inflation Speedos. Nevertheless, Holt is concerned about recent and interest rates in Thailand affect the baht's value?. developments in Asia. Foreign investors from various (Assume a constant level of U.S. inflation and interest countries bad invested heavily in Thailand to take countrieshadinvestedheavilyinThailandtotakeadvantageofthehighinterestratesthere.AsaresultoftheweakeconomyinThailand,however,manyfor-eigninvestorshavelostconfidenceinThailandandrates.)4.HowdoyouthinkthelossofconfidenceintheThaibaht,evidencedbythewithdrawaloffundsfromThailand,willaffectthebahtsvalue?WouldBladesbehavfectedbythechangeinvalue,giventheprimaryThai Holt has two major concerns regarding these developments. First, he is wondering how these developments. First, he is wondering how these 5. Assume that Thailand's central bank wishes to changes in Thailand's economy could affect the prevent a withdrawal of funds from its country in order value of the Thai baht and, consequently, Blades. to prevent further changes in the currency's value. How More specifically, he is wondering whether the effects on the Thai baht may affect Blades even could it accomplish this objective using interest rates? though its primary Thai customer is committed to 6. Construct a spreadsheet illustrating the steps Blades' treasurer would need to follow in order to Bladesoverthenextthreeyears.speculateonexpectedmovementsinthebahtsvalueBladestreasurerwouldneedtofollowinorderto speculate on the anticipated movement of the baht, over the next 30 days. Also show the speculative profit but he is uncertain about the procedure needed to (in dollars) resulting from each scenario. Use both of accomplishthis.TofacilitateHoltsunderstandingofexchangeratespeculation,hehasaskedyou,BladesHoltsexamplestoillustratepossiblespeculation.AssumethatBladescanborroweither$10millionor financial analyst, to provide him with detailed illustra- the baht equivalent of this amount. Furthermore, tions of two scenarios. In the first, the baht would assume that the following short-term interest rates move from a current level of $.022 to $.020 within the next 30 days. Under the second scenario, the baht would move from its current level to $.025 within the next 30 days. Based on Holt's needs, he has provided you with the following list of questions to be answered: Assessment of Future Exchange Rate Movements As the chief financial officer of Blades, Inc., Ben Holt is 1. How are percentage changes in a currency's value pleased that his current system of exporting "Speedos" measured? Illustrate your answer numerically by to Thailand seems to be working well. Blades' primary assuming a change in the Thai baht's value from a customer in Thailand, a retailer called Entertainment value of $.022 to $.026. Products, has committed itself to purchasing a fixed 2. What are the basic factors that determine the value number of Speedos annually for the next three years of a currency? In equilibrium, what is the relationship at a fixed price denominated in baht, Thailand's cur- between these factors? rency. Furthermore, Blades is using a Thai supplier for 3. How might the relatively high levels of inflation Speedos. Nevertheless, Holt is concerned about recent and interest rates in Thailand affect the baht's value?. developments in Asia. Foreign investors from various (Assume a constant level of U.S. inflation and interest countries bad invested heavily in Thailand to take countrieshadinvestedheavilyinThailandtotakeadvantageofthehighinterestratesthere.AsaresultoftheweakeconomyinThailand,however,manyfor-eigninvestorshavelostconfidenceinThailandandrates.)4.HowdoyouthinkthelossofconfidenceintheThaibaht,evidencedbythewithdrawaloffundsfromThailand,willaffectthebahtsvalue?WouldBladesbehavfectedbythechangeinvalue,giventheprimaryThai Holt has two major concerns regarding these developments. First, he is wondering how these developments. First, he is wondering how these 5. Assume that Thailand's central bank wishes to changes in Thailand's economy could affect the prevent a withdrawal of funds from its country in order value of the Thai baht and, consequently, Blades. to prevent further changes in the currency's value. How More specifically, he is wondering whether the effects on the Thai baht may affect Blades even could it accomplish this objective using interest rates? though its primary Thai customer is committed to 6. Construct a spreadsheet illustrating the steps Blades' treasurer would need to follow in order to Bladesoverthenextthreeyears.speculateonexpectedmovementsinthebahtsvalueBladestreasurerwouldneedtofollowinorderto speculate on the anticipated movement of the baht, over the next 30 days. Also show the speculative profit but he is uncertain about the procedure needed to (in dollars) resulting from each scenario. Use both of accomplishthis.TofacilitateHoltsunderstandingofexchangeratespeculation,hehasaskedyou,BladesHoltsexamplestoillustratepossiblespeculation.AssumethatBladescanborroweither$10millionor financial analyst, to provide him with detailed illustra- the baht equivalent of this amount. Furthermore, tions of two scenarios. In the first, the baht would assume that the following short-term interest rates move from a current level of $.022 to $.020 within the next 30 days. Under the second scenario, the baht would move from its current level to $.025 within the next 30 days. Based on Holt's needs, he has provided you with the following list of questions to be answered