Question
CPPC is a Ghanaian cocoa processing company that exports cocoa butter to South Africa. CPPC bills its client in South Africa in South African rands
CPPC is a Ghanaian cocoa processing company that exports cocoa butter to South Africa. CPPC bills its client in South Africa in South African rands (ZAR), the South African currency. CPPC is due to receive five million rands in 90 days for a consignment just shipped to South Africa. The spot rate today is GHS 0.3165/ZAR.
Descriptive statistics of the percentage changes in the quarterly exchange rates for GHS/ZAR are given below:
Minimum quarterly percentage changes -16.4%
Maximum quarterly percentage changes -12.6%
Average quarterly percentage change - 0.9%
Standard Deviation of quarterly percentage changes - 4.6%
Likelihood of the ZAR appreciating against the cedi - 60.2%
Likelihood of the ZAR depreciating against the cedi - 38.5%
Recently, the South African rand has been depreciating against the cedi raising concerns on its impact on CPPC's cash flows. At a recent meeting of the Board of Directors, the Technical Director of CPPC argued that the current system of invoicing exports in the client's currency exposes CPPC to high exchange rate risk and suggested that CPPC should consider invoicing its exports in Ghana cedis.
- Evaluate the validity of the Technical Director's suggestion that CPPC should invoice its exports in cedis.
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