File Vic Tools SUBJECTIVE TYPE Strategic Financial Management Final term paper (Protected Vicw) Word (Product Activation Failed) O PROTECTED VIEW Be careful-files from the Internet can contain vinuses. Unless you need to edit, it's safer to stay in Protected View Enable Editing Question No: 5 (8 Marks) The US Imports Company purchased 200,000 Freedonian marks' worth of machinery from a firm in Zeppo, Freedonia. The value of the dollar in terms of the mark has been decreasing. The firm in Zeppo offered credit terins of 3/10, net 90." The spot rate for the mark is $0.65, and the 90-day forward rate is $0.66 Required: a) Compute the dollar cost of paying the account within the 10-day discount period. Is the mark at a forward premium or at a forward discount? Justify b) Compute the dollar cost of buying a forward contract to liquidate the account in 90 days. Is the mark at a forward premium or at a forward discount? Justify c) On an annualized basis, calculate the cost of this protection & also explain it that how the forward exchange market allows a company to insure against devaluation or market-determined declines in value. d) Why should a company manage its currency-risk exposure? Can the company "self-insure" at less cost? 4 Page Activate Windows Gu lu Settings to activate Windows Page 4 of 4 TO Type here to search OE + 110% 228 PM 02-Jun-21 14 w] Pl Ai Ps S O 13 File Vic Tools SUBJECTIVE TYPE Strategic Financial Management Final term paper (Protected Vicw) Word (Product Activation Failed) O PROTECTED VIEW Be careful-files from the Internet can contain vinuses. Unless you need to edit, it's safer to stay in Protected View Enable Editing Question No: 5 (8 Marks) The US Imports Company purchased 200,000 Freedonian marks' worth of machinery from a firm in Zeppo, Freedonia. The value of the dollar in terms of the mark has been decreasing. The firm in Zeppo offered credit terins of 3/10, net 90." The spot rate for the mark is $0.65, and the 90-day forward rate is $0.66 Required: a) Compute the dollar cost of paying the account within the 10-day discount period. Is the mark at a forward premium or at a forward discount? Justify b) Compute the dollar cost of buying a forward contract to liquidate the account in 90 days. Is the mark at a forward premium or at a forward discount? Justify c) On an annualized basis, calculate the cost of this protection & also explain it that how the forward exchange market allows a company to insure against devaluation or market-determined declines in value. d) Why should a company manage its currency-risk exposure? Can the company "self-insure" at less cost? 4 Page Activate Windows Gu lu Settings to activate Windows Page 4 of 4 TO Type here to search OE + 110% 228 PM 02-Jun-21 14 w] Pl Ai Ps S O 13