Answered step by step
Verified Expert Solution
Question
1 Approved Answer
need answer asap Kennys is an Irish fast-fashion retailer that has over sixty outlets across the country. It sources the majority of clothing lines from
need answer asap
Kennys is an Irish fast-fashion retailer that has over sixty outlets across the country. It sources the majority of clothing lines from suppliers in Vietnam and price competitiveness is a critical part of its competitive advantage. Kennys are due to pay 10.4 million Vietnamese dong to one of its suppliers in six months' time and are looking at ways of protecting this payment from adverse currency movement. Kennys is heavily relying on one of its Irish customers to pay this money is due in 5 months' time and this receipt is important to ensure it has the funds to complete any forward contracts it enters into. This customer has been a somewhat unreliable payer in the past. Kennys has ascertained the following information from its local bank. Spot exchange rate dong/euro 7.692 - 7.785 1 month exchange rate dong/euro 7.763 - 7.856 3 month exchange rate dong/euro 7.788 -7.881 6 month exchange rate dong/euro 7.808 -7.901 Bank rates(Annual) deposit borrow Euro 3.5% 4% Vietnam 3.75% 4.5% 6 Required: Calculate the risks facing Kennys with regard to the 10.4m dong payment and make recommendations on how they could manage these risks. (8 marks) Calculate the cost of the payment using a forward exchange contract compared to the cost of a money market hedge. Advise Kennys which is the best option. (12 marks) Kennys is also thinking of expanding into the US market and is trying to estimate the Foreign exchange risk it may face. It has gathered the following data. (a) Spot rate 1.52$/1 euro c) (6) Euro inflation. 2.% per annum C) US inflation 2.5% per annum Explain the meaning of purchasing power parity (PPP) and calculate the one-year forward exchange rate between the dollar and the euro implied by PPP. (5 marks) Kennys is an Irish fast-fashion retailer that has over sixty outlets across the country. It sources the majority of clothing lines from suppliers in Vietnam and price competitiveness is a critical part of its competitive advantage. Kennys are due to pay 10.4 million Vietnamese dong to one of its suppliers in six months' time and are looking at ways of protecting this payment from adverse currency movement. Kennys is heavily relying on one of its Irish customers to pay this money is due in 5 months' time and this receipt is important to ensure it has the funds to complete any forward contracts it enters into. This customer has been a somewhat unreliable payer in the past. Kennys has ascertained the following information from its local bank. Spot exchange rate dong/euro 7.692 - 7.785 1 month exchange rate dong/euro 7.763 - 7.856 3 month exchange rate dong/euro 7.788 -7.881 6 month exchange rate dong/euro 7.808 -7.901 Bank rates(Annual) deposit borrow Euro 3.5% 4% Vietnam 3.75% 4.5% 6 Required: Calculate the risks facing Kennys with regard to the 10.4m dong payment and make recommendations on how they could manage these risks. (8 marks) Calculate the cost of the payment using a forward exchange contract compared to the cost of a money market hedge. Advise Kennys which is the best option. (12 marks) Kennys is also thinking of expanding into the US market and is trying to estimate the Foreign exchange risk it may face. It has gathered the following data. (a) Spot rate 1.52$/1 euro c) (6) Euro inflation. 2.% per annum C) US inflation 2.5% per annum Explain the meaning of purchasing power parity (PPP) and calculate the one-year forward exchange rate between the dollar and the euro implied by PPPStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started