BLADES, INC. CASE Assessment of Future Exchange Rate Movements As the chief financial officer of Blades, Inc., Ben Holt isaffect Blades even though its primary Thai customer pleased that his current system of exporting "Speedos is committed to Blades over the next 3 years. to Thailand seems to be working well. Blades' primary customer in Thailand, a retailer called Entertainment speculate on the anticipated movement of the baht, but Products, has committed itself to purchasing a fixed he is uncertain about the procedure needed to accom number of Speedos annually for the next 3 years at a plish this. To facilitate Holt's understanding of exchange fixed price denominated in baht, Thailand's currency. rate speculation, he has asked you, Blades' financial ana Furthermore, Blades is using a Thai supplier for some lyst, to provide him with detailed illustrations of two of the components needed to manufacture Speedos. scenarios. In the first, the baht would move from a cur Nevertheless, Holt is concerned about recent develop rent level of $.022 to $.020 within the next 30 days. ments in Asia. Foreign investors from various countries Under the second scenario, the baht would move from had invested heavily in Thailand to take advantage of its current level to $.025 within the next 30 days the high interest rates there. As a result of the weak Based on Holt's needs, he has provided you with the economy in Thailand, however, many foreign investors following list of questions to be answered have lost confidence in Thailand and have withdrawn their funds Second, Holt believes that Blades may be able to 1. How are percentage changes in a currency's value measured? Illustrate your answer numerically by Holt has two major concerns regarding these devel opments. First, he is wondering how these changes in baht and, consequently, Blades. More specifically, he is wondering whether the effects on the Thai baht may assuming a change in the Thai baht's value from 2. What are the basic factors that determine the value ailand's economy could alfect the value of the Thai value of $.022 to $.026. ot u curencyt In equilibrium, what is the relationship between these factors