foreign exchange:

1.Using international parity theories, explain the probable changes in the future expected spot exchange rates.

2.Identify and explain the strategies PSL can use to minimise FX rate exposures.

PSL is a PharmSafe Ltd. this is the details of the PSL story that you can refer when answering the questions. furthermore, include the references that you use or at least the links only.

PharmSafe Ltd (PSL) expansion to Japan and Vietnam

You have been appointed as an advisor to a leading pharmaceuticals manufacturing company (PharmSafe Ltd (PSL) - a hypothetical company) established in China. The company owns a number of reputable vitamin product lines which have been protected by international patent rights law.

As an expert in international finance and banking, you are required to assist PSL to expand its current operation into a number of overseas markets. The company currently engages in export and import activities using a well-linked international network of agents. In addition, they also have a very good presence in the online market.

The company currently uses CNY as their international trading currency and all suppliers are required to invoice in MYR. PSL is considering changing this policy. The proposed change in policy is either to move to the currency of the trading partners' countries or to the USD when transacting with foreign partners in the future. PSL allows three months to settle with their foreign customers.However, PSL are allowed four months to settle their suppliers' invoices.

At the initial stage, PSL expects to expand its operations into Vietnam and Japan. For this, two subsidiaries will be formed in these two countries.

In Japan, they plan to establish a network of small retail outlets in leading supermarkets. Most products for these outlets are expected to ship from its current manufacturing facility in AUSTRALIA.

Currently, the company is experiencing the increasing labour costs in China, and also because of the trade war between the U.S and China, the company conducted a feasibility study last year, which revealed that locating a supplement manufacturing plant in Vietnam would reduce some production costs and to avoid being a complete casualty in the trade war. Therefore, the company plan to establish a state of the art manufacturing facility in Vietnam to produce lines of vitamin products using local labour. The Thai operation will be used to satisfy the demand in South-East Asia.

PSL's policy is to review the cash flow situation of all its subsidiaries every three months and remit any excessive cash balances to the head office in China after keeping an adequate amount for the local day-to-day operations.