Problem is attached (Walsh Inc.)! Thank you in advance!

Walsh Inc. is a U.S. manufacturer of heavy construction equipment used in the construction of deep water ports and heavy lift capacity airports. Walsh is headquartered in Troy, Mi., and has just received an order from a Pakistani Construction Company not known to you or to Walsh. The order is for two of your largest earth movers with the total sale price of e30.0 million euros. The Pakistani company requires Walsh to ship upon complettion of manufacture and will pay the e30.0 million to you six months from shipment. Global Financing (a Commercial Bank of which you are President and Chief Lender) is the international financier hired to put this financial transaction together and make it happen, (so don't make this a career limiting opportunity)! Cost of funds is 4.75% (LIBOR) Confirmation fees are 65 basis points Negotiation fees are 12 basis points Discount Commission is 30 basis points Spot euro is $1.4950 90 day euro is $1.4975 180 day euro is $1.5000 Banker's Acceptance rates are 4.96% Issues to consider: The Pakistani's cannot pay for 180 days from shipment Walsh wants it's money as soon as shipment is made What are the many different ways you can make money from this transaction without taking any undue risk How would you cover yourself for Pakistani risk What other risks do you have (financial and otherwise), explain how to mitigate Is the euro and the dollar at equilibrium? prove that it is or isn't How much would you make on the total transaction in dollar and yield terms Are there any possible investment instruments that can be created out of this transaction, is this also a revenue opportunity?, If so how much. Assume no ancillary or incidental fees How would you eliminate the foreign exchange risk, is there any? when?how?, explain and calculate All computations are in U.S. dollars ( you're in the U.S. remember!) What international instrument can be used to ensure performance of both parties? Describe how it works and what parties are involved in this deal This question encompasses all the major issues we discussed during the semester, please ensure you consider all risk and financing issues in your answer. OK, now put the deal together. WALSH INC. MANUFACTURER OF HEAVY CONSTRUCTION EQUIPMENT VERSUS PAKISTAN CONSTRUCTION COMPANY. Ways in which as the global financing Bank I can use to make money from the Walsh and Pakistan transaction without taking any undue risks are: Since Pakistan cannot pay within 180 days from shipment, whereas Walsh wants its' money as soon as shipment is made, thus increase the number of days and charge higher rate this will bring higher revenue thus more profit. Optimize the value of Foreign Currency Cash Flows. Transacting business in any foreign currency is quite challenging. As you try to identify the threats and opportunities of doing business in other regions around the world, through improving foreign currency cash flows by maximizing the value of receivables and minimizing the cost of payables. Take advantage of competitive exchange rates to generate profit from the transaction. Choose the payment method that matches your needs and then convert your Canadian dollars to foreign currency when the payment is sent. Settling payment of the transaction to Walsh through involving bank in United States that has a payment to make in Pakistan to reduce the foreign exchange transaction risk. How I will cover myself against Pakistan risk is through: Acquisitions of all necessary documents and signatures from Pakistan Construction Company that shows they are not able to make payment at the moment from shipment to Walsh Manufacturing, requesting the bank to make that payment on its behalf, and clarification showing when the payments will be made and how and in addition the terms and condition of its agreement with Walsh. The risk am involved in and ways of mitigating them are: Foreign exchange risk -which occurs when the value of investment fluctuate due to change in currency rate. Due to volatility nature of the exchange, its' quite problematic in protecting this kind of risk. Political risks- which is faced by commercial banks when the country's government unexpectedly changes its policies. This include things like trade barrier and restrictions to limit international trade. Fraud risk- To cover various aspects of trade fraud requires volumes of record-keeping. I need to be cautious when dealing with transactions of high value. Financing risk- which is the probability of loss that increases as the credit period increases. I can mitigate financing risks through reduction of credit period. Bank risk- This is due to various banks of varying degrees of stability and capabilities and thus when financing an importer or exporter I have to look to the security of backing documents issued by another bank. The euro and dollar are not at equilibrium. This is due to varying exchange rates which keep fluctuating from time to time. Euro and dollar have varying levels of demands resulting to varying levels of supply this leads to in-equilibrium. This is quite costly in international trade to convert from one currency. The amount I would make on the total transaction in dollar and yield terms are: The amount paid =e30.0 million. 1 Euro=1.13 US Dollar 30million euro=? =$33.9 Cost of funds=4.75% *$33.9=$1.61m The possible investment instruments that can be created out of this transaction are: Foreign Portfolio Investment which is a category of investment instrument that is easily traded, less permanently and do not represent a controlling post in an organization. They include investments via stocks and bonds which do not represent a long term interest. Commercial loans which takes form of bank loans granted to foreign businesses. Official flows which refer to form of development assistance that developed nations give developing countries. Foreign Direct Investment pertains to international investment in which investor obtains lasting interest in an enterprise in another country. I would eliminate foreign exchange risks through: Planning for the risk- This involves agreeing budgeted exchange rate for the year by taking into consideration the volume, timing of transactions and as well as realistic assumption of current and future risks. Get right timing: This is in order to take advantage positive movements. This means I need to be well informed and monitor closely my clients to enable me make absolute timely decisions. Avoid gambling- Attempting this would increase risk whereby extreme movement catches one out. Choose strategy that suits requirements- With this icon review tools that I can use to manage exposure. Depending on my budgeted rate, requirements and timing can suggest a strategy on how to offer international finance. The international instrument that can be used to ensure performance of both parties and how it works is: Bank guarantees- Walsh inc. and Pakistan construction company can use Bank Guarantees which is a widely and internationally accepted for security claims of parties to foreign trade contracts in a way that protects all interests of participants, reducing the risk associated with dealing with partners in other countries The parties involved are: The bank customer/Applicant which is the company on whose behalf, the guarantee is given. In which in this case Pakistan is the applicant. Guarantor- Bank who gives the guarantee of the transaction. In this case Global financing is the guarantor. Beneficiary-The Company on whose favor guarantee is given. Which is Walsh Manufacturing Company. WALSH INC. MANUFACTURER OF HEAVY CONSTRUCTION EQUIPMENT VERSUS PAKISTAN CONSTRUCTION COMPANY. Ways in which as the global financing Bank I can use to make money from the Walsh and Pakistan transaction without taking any undue risks are: Since Pakistan cannot pay within 180 days from shipment, whereas Walsh wants its' money as soon as shipment is made, thus increase the number of days and charge higher rate this will bring higher revenue thus more profit. Optimize the value of Foreign Currency Cash Flows. Transacting business in any foreign currency is quite challenging. As you try to identify the threats and opportunities of doing business in other regions around the world, through improving foreign currency cash flows by maximizing the value of receivables and minimizing the cost of payables. Take advantage of competitive exchange rates to generate profit from the transaction. Choose the payment method that matches your needs and then convert your Canadian dollars to foreign currency when the payment is sent. Settling payment of the transaction to Walsh through involving bank in United States that has a payment to make in Pakistan to reduce the foreign exchange transaction risk. How I will cover myself against Pakistan risk is through: Acquisitions of all necessary documents and signatures from Pakistan Construction Company that shows they are not able to make payment at the moment from shipment to Walsh Manufacturing, requesting the bank to make that payment on its behalf, and clarification showing when the payments will be made and how and in addition the terms and condition of its agreement with Walsh. The risk am involved in and ways of mitigating them are: Foreign exchange risk -which occurs when the value of investment fluctuate due to change in currency rate. Due to volatility nature of the exchange, its' quite problematic in protecting this kind of risk. Political risks- which is faced by commercial banks when the country's government unexpectedly changes its policies. This include things like trade barrier and restrictions to limit international trade. Fraud risk- To cover various aspects of trade fraud requires volumes of record-keeping. I need to be cautious when dealing with transactions of high value. Financing risk- which is the probability of loss that increases as the credit period increases. I can mitigate financing risks through reduction of credit period. Bank risk- This is due to various banks of varying degrees of stability and capabilities and thus when financing an importer or exporter I have to look to the security of backing documents issued by another bank. The euro and dollar are not at equilibrium. This is due to varying exchange rates which keep fluctuating from time to time. Euro and dollar have varying levels of demands resulting to varying levels of supply this leads to in-equilibrium. This is quite costly in international trade to convert from one currency. The amount I would make on the total transaction in dollar and yield terms are: The amount paid =e30.0 million. 1 Euro=1.13 US Dollar 30million euro=? =$33.9 Cost of funds=4.75% *$33.9=$1.61m The possible investment instruments that can be created out of this transaction are: Foreign Portfolio Investment which is a category of investment instrument that is easily traded, less permanently and do not represent a controlling post in an organization. They include investments via stocks and bonds which do not represent a long term interest. Commercial loans which takes form of bank loans granted to foreign businesses. Official flows which refer to form of development assistance that developed nations give developing countries. Foreign Direct Investment pertains to international investment in which investor obtains lasting interest in an enterprise in another country. I would eliminate foreign exchange risks through: Planning for the risk- This involves agreeing budgeted exchange rate for the year by taking into consideration the volume, timing of transactions and as well as realistic assumption of current and future risks. Get right timing: This is in order to take advantage positive movements. This means I need to be well informed and monitor closely my clients to enable me make absolute timely decisions. Avoid gambling- Attempting this would increase risk whereby extreme movement catches one out. Choose strategy that suits requirements- With this icon review tools that I can use to manage exposure. Depending on my budgeted rate, requirements and timing can suggest a strategy on how to offer international finance. The international instrument that can be used to ensure performance of both parties and how it works is: Bank guarantees- Walsh inc. and Pakistan construction company can use Bank Guarantees which is a widely and internationally accepted for security claims of parties to foreign trade contracts in a way that protects all interests of participants, reducing the risk associated with dealing with partners in other countries The parties involved are: The bank customer/Applicant which is the company on whose behalf, the guarantee is given. In which in this case Pakistan is the applicant. Guarantor- Bank who gives the guarantee of the transaction. In this case Global financing is the guarantor. Beneficiary-The Company on whose favor guarantee is given. Which is Walsh Manufacturing Company