how do i solve question 7? (case study and figures are in page 1)

international trade with Australia but the financial Case study: Aussie Blades, Ply Ltd Assessment of future exchange rate movements As the chief financial officer of Aussie Blades, Pty Ltd, Ben Holt is pleased that his current system of exporting! Speedos' to Thailand seems to be working well. Aussie Blades primary customer in Thailand, a retailer called Rolling Products, Inc, has committed itself to purchasing a fixed number of Speedos annually for the next three years at a fixed price denominated in baht, Thailand's currency Furthermore, Aussie Blades is using a Thai supplier for some of the components needed to manufacture Speedos. Nevertheless, Holt is concerned about recent developments in Asia. Foreign investors from various countries had invested heavily in Thailand to take advantage of the high interest rates there. As a result of the weak economy in Thailand, however, many foreign investors have lost confidence in Thailand and have withdrawn their funds. Holt has two major concerns regarding these developments. First, he is wondering how these changes in Thailand's economy could affect the value of the Thai baht and, consequently, Aussie Blades. More specifically, he is wondering whether the effects on the Thai baht may affect Aussie Blades even though its primary Thai customer is committed to Aussie Blades over the next three years. Second, Holt believes that Aussie Blades may be able to speculate on the anticipated movement of the baht, but he is uncertain about the procedure needed to accomplish this. To facilitate Holt's understanding of exchange rate speculation, he has asked you, Aussie Blades' financial analyst, to provide him with detailed illustrations of two scenarios. In the first, the baht would move from a current level of A$0.022 to A$0.020 within the next 30 days. In the second scenario, the baht would move from its current level to A$0.025 within the next 30 days. Based on Holt's needs, he has provided you with the following list of questions to be answered: 1 How are percentage changes in a currency's value measured? Illustrate your answer numerically by assuming a change in the Thai baht's value from A$0.022 to A$0.026. ? What are the basic factors that determine the value of a currency? In equilibrium, what is the relationship between these factors? 205 esc 0: 2 EXCHANGE RATE BEHAVIOUR How might the relatively high levels of inflation and interest rates in Thailand affect the baht's value? (Assume a constant level of Australian inflation and interest rates.) If the spot exchange rate is A$0.022 and the inflation difference between Thailand and Australia is 5 per cent in question (S), what should be the expected exchange rate in the market? Explain. How do you think the loss of confidence in the Thai baht, evidenced by the withdrawal of funds from Thailand, will affect the baht's value? Would Aussie Blades be affected by the change in value, given the primary Thai customer's commitment? Assume that Thailand's central bank wishes to prevent withdrawal of funds from its country in order to revent further changes in the currency's value. How buld it accomplish this objective using interest rates? Construct a spreadsheet illustrating the steps Aussie Blades' treasurer would need to follow in order to speculate on expected movements in the baht's value over the next so days. Also show the speculative profit (in Australian dollars) resulting from each scenario. Use both of Holt's examples to illustrate possible speculation. Assume that Aussie Blades can borrow either A$10 million or the baht equivalent of this amount. Furthermore, assume that the following short-term interest rates (annualised) are available to Aussie Blades: Currency Lending rate Borrowing rate 8.1% Australian dollar Thai baht 8.2% 15.4% 14.8% call business dilemma 1 ssment by the Sports Exports Company of is that affect the British pound's value the Sports Exports Company (an Australian "y) receives payments in British pounds every and converts those pounds into Australian dollars, Given Jim's expectations, forecast whet will appreciate or depreciate against the Australian dollar over time. Given Jim's expectations, will the Sports Exports Company be favourably or unfavourably affected by the fine hanno in