I need help with these questions please ASAP!! especially questions 5 - 8 please!! I need the answers in numbers (the calculations)

George Fishbum, President and CEO of Carolina Fumiture Company, sat leisurely in his office on a Friday aftemoon reviewing the German sales figures for the second quarter of 1991 . He was very pleased with his furm's exporting activities. Two years ago his company had no foreign customers and today it had several big customers in Germany, Japan and Singapore. About 12 -to-15-pereeht-of the firm's nevenues came from export sales. Although sales to Germany had in 1991. As he reviewed the figures hour, they would still amount to about two million dollars declined in value from $0.6693/DM to $0.5824/D. customer was booked to the time the firm received resulted in a transaction loss of almost $26,000 on of wondered if the company could afford to lose this kind of nor profit of $4,000; however, George markets. His thoughts began to stray as he scrutinized the numbers. He had worked hard for the past 12 years and the business had prospered under his leadership. He remembered that fall day in 1979 when he received a call from his mother at his dormitory at the University of North Carolina - Chapel Hill informing him that his father had just had a stroke and the prognosis was rather dim. He had rushed back to the family home in High Point, North Carolina. Albert Fishbun died the following week, leaving the reins of the business to his son. George Fishburn did not return to college after that, and never became the foreign correspondent for Time magazine that he had always wanted to be. The Carolina Fumiture Company was formed in 1958 by Albert Fishburn and his army buddy Leroy Brown. Initially, the company manufactured early American fumiture that emphasized simple styles and high quality. The economic growth of the 1960s and 1970s, accompanied by an increase in home ownership, helped the company grow by leaps and bounds. By 1973, sales had grown to 5 million dollars and total assets rose to almost 1.5 million dollars. On the average, the firm maintained a healthy profit margin of 7 percent of sales, making the two army buddies quite afluent in a short period of time. In 1974, Leroy Brown sold his share of the business to Albert Fishburn and moved to Florida. The initial days after his father died were difficult for George; he had to learn the furniture business and deal with the recession. For the first time in its history, Carolina Fumiture Company suffered a loss in the 1981-82 fiscal year. During the next three years George learned the business and instituted major changes in the company. First, he modernized the plant with new machines which reduced dependenee on manual tabor, improved productivity, and most importantly, achieved substantial cost savings. Equipment holdings were reviewed anmually, end as much as possible, the firm tried to remain on top of new technology. Outdated or obsolete equipment was sold to smaller furniture manufacturers. The improved productivity increased the profit margin to 12 percent, the highest in the industry. Second, he implemented an aggressive marketing strategy. In the past, Carolina Fumiture Company had depended entirely on wholesale furniture distributors for orders. Under George's direction, the company opened its first display booth in the furniture mart at Hickory. North Carolina. This allowed the firm to be more responsive to customers and to achieve a greater market exposure. The booth was a great success, Within three years, major furniture outlets and retail chains (like J.C. Penney's) on the cast coast carried the Carolina Fumiture line. In 1985, another display booth was opened in the Merchandise Mart at Dallas, Texas. The third display booth was cpenod in 1987 in San Franeisco, California. With three display booths, the company achieved national coverage, and by 1989, annual sales had grown to 42 million dollars. The third major change that George instituted was the expansion of the product line. In addition to the Early-Ameriean styles, the company introduced several avant-garde lines that the baby boomer generation found attractive. An in-house design team was recruited that worked closely with the marketing personnel and salespeople at the three display booth locations. Every spring the new designs were introduced and displayed in the major furniture shows and at the display booths. In spite of these successes, George always remembered the recession of the early eightics. He recognized that the furmiture business was essentially a cyclical business, and the next recession could have an adverse consequence on his business unless he diversified to new makets in other countries. The accessibility of the factory to several seaports in North Carolina and South Carolina, along with the presence of several major banks in the area, offered Carolina Furniture many advantages that domestic furniture manufacturers elsewhere did not have. In late 1988, George embarked on an export strategy. After preliminary research and consultation with bankers and the export promotion office at the North Carolina Department of Commerce, George Fishbum and Lisa Hammonds, vice president of marketing, decided that export markets should be targeted in countries that had a trade surplus with the United States and were expected to experience a faster economic growth than the United States. In June 1989, George and Lisa traveled to Gemany, Japan, and Singapore to explore export markets and seek customers in those countries. The trip was a great success. Several German retailers expressed interest, and two major furmiture outlets signed firm purchase contracts worth $250,000. However, the German customers insisted that the orders be invoiced in DM. George knew that it wasn't difficult to convert DM to dollars and he readily agreed. Given the prevailing exchange rate of $0.5122/DM, he signed the sales contract for DM488,091. Delivery and payment were scheduled for the third week of September, 1989. When payment was received in 1989 the DM had increased in value to $0.5353DM, yielding an inflow of $261,275, a gain of $11,275. George was very pleased with this outcome. Economie forecasts indicated that the dollar was expected to remain weak against all major currencies. Therefore, Carolina Furniture adopted a policy of invoicing all its foreign customers in their respective currencies. Now that the dollar had begun to strengthen, George thought the time might have come to change the denomination of the firm's export invoices. He called Lisa for her views, and she reminded him of the difficult negotiations they had experienced with Japanese and Singapore importers to agree on the denomination of the sale, A request for a change in terms, especially when the dollar was showing signs of strength, might not be acceptable to the importers and 452 could result in a decline in orders. Lis, therefore, felt that the dersomination of the export sales should not be changed. Allen Bradley, corporate treapurer and vice president of finance-was looking forward to some rest and relexation over the weekend when Oeorge Fishburn called him. George was very concemed about the transaction loos from the German sale and he wanted to meet with Allen on Monday to discuss the alternatives for bed ging forcign exchange transactions. The firm's bank, Nationabank, had carlier otfered its services to Carolina Furnituro Company for Goorge as he hung to. After he got cr the phone, R \& R was the last thing on Allen's mind as. he began to compile the necessary information. As Allen checked the records, he found that Carolina Fumiture Company had the following foreign exchange transactions unser contract. Uniess these transactions were hedged, the dollar cash flow from these inansuctions would depend on the spot rate of the foreign eurrency at the lime payment was received. Germany A sale of DMz, 000, 000 to the Hamburg International Hotel which is opening for business in fingaxy 1992 . Parts of this order have already been shipped. The last consignintent wirt be shipped in the second week of October and payment will be received on Novemibs 14, 1991. Japan A payment of JY150,000,000,000 will be received from Sakado Enterprises, - a large trading company in Iobyo, on September 18, 1991. The furniture against this order was shipped in the second week of August 1991. Singanore 1. Two hundred and fifly thousand Singapore dollars (SS) are due on November 23. 1991 from Pattsan Brothers, a furmiture retalet. The furniture against this invoice was shipped in the last week of July. 2. Another $5250,000 would be due from Pahasan Brothers on February 17. 1992. The stipment against this invorce will be made in the last week of December 1991 . Next, Allen began outlining the altemative hedging strategies. Basically, he had two matives. Firs, he could recommend the use offorward contracts which allow the purchase ale of foreign currencies in future periods. Intemational banks make forward markets in the or currencies. However, Do forward contracts vere available for the SS in the United States. ward contracts could be tailor-mode with respect to amount and maturity. Typically, banks not offer forward contracts to speculators, and preferred to deal with hedgers only. The saction amount of forvard contracts' size is usually large, a million dollars or more. If fina Furniture chose to use the forward market altemative, it would have to execute a short c (i.e, sell foreign currency forvard) since it is expecting forcign currency inflows. The second alternative would be a money market hedge. This technique is especially le for those currencies that do not have forward contracts. A short hedge in the money 45-3 makket irvolves borrowing the foreign currency with the same maturity as the expected inflow. The borrowed forcign currency is then converted in the spot market and unually invested in the domestio money merlet. Since the forcigr currency loan and inflow have the same maturity, the loan is paid with the foreign currency inflow. While reviewing this information, Allen realized that the same hedging instrument may not be suitable for all the forcign exohange transoctions and a different hedging instrument may have to be tused for each transaction. Therefore, the problem, as he saw it, was to find the appropriate hed ging strategy for a given foreign exchange transaction. 1. How do you think the hedge will accomplish Carolina Furniture Company's objective of protecting the value of its foreign currency cash flows? 2. What are the expected cash flows from the DM transaction if it is hedged in the forward market? 3. How would the DM inflows be hedged in the moncy market? If this transaction is hedged in the money market, what are the expected cash flows? 4. Given the answer to the two previous questions, which alternative would you choose to hedge the DM transaction? 5. What are the expected cash flows from the JY transaction if it is hedged in the forward market? 6. How would the JY inflows be hedged in the money market? If this transaction is hedged in the money market, what are the expected cash flows? 7. What should be done regarding the JY inflows? Why? 8. What would be the net cash flows to Carolina Furniture Company by hedging the SS cash flows in the money market