Cecil, who builds aeroplanes as a hobby, would like to place an order for engine parts from an American supplier. He worked out a potential order for the engines at a cost of 1 650 million US dollars. The accountant explained that Cecil can also borrow on a 3-monthly basis at 12% per annum from South Africa.

The American supplier requires that this amount be payable as follows:

Date of order 01 April 20.4	$400 000
Date of Shipment 01 July 20.4	$600 000
Balance due on 01 October 20.4	$650 000

The bank quoted spot and forward rand/dollar exchange rates:

	Buy	Sell
Spot rate 01 April 20.4	15,232	13,238
Three-month forward rate	15,488	14,496
Six-month forward rate	15,762	14,771

Required:

With Regards to the purchase of the American Engine parts

(i) Determine the total cost of the engine parts if Cecil undertakes a forward cover on all the foreign currency obligations.

(ii) If the foreign supplier is willing to offer a 1.2% discount on the balance of $650 000 due on the 01 October 20.4 for the payment to instead be made on shipment date, calculate whether Cecil should make use of the discount.

iii) What are some of the risks that Cecil faces by purchasing from an overseas supplier