PT. Best Martina (PTBM) is one of the leading local companies in Indonesia, producing a wide range of cosmetic products. The COVID-19 pandemic had caused a severe shortage in the supply of medical products and personal protective equipment, including disinfectants has become very scarce in the market causing prices to escalate astronomically. Seeing this as an emergency need, several local companies, including PT. Best Martina responded by producing a variety of antiseptic-based products. Corporate Director of Creative and Innovation at PTBM, Mr. Budi explained that the company would be initiating the hand sanitizer production process. He explained that by considering the scarcity of hand sanitizers in the market, PTBM is committed to produce and sell at a low price in the local market, so that this product was affordable for the wider community. The basic formulation of this antiseptic product consists of 70% alcohol base and further combined with camomile extract for anti-irritation, lemongrass extract and basil to enhance natural antiseptic properties. The product is sold in gel and spray form. During the initial production run, PTBM has already produced 20 million bottles of hand sanitizers which have been sold through all sales channels both offline and online; some have been donated for the community surrounding the factory sites. Besides fulfilling the needs of the local market. PTBM also intends to export hand sanitizer overseas specifically to the African continent, namely to Algeria, Cameroon and Egypt. These three countries African countries have been severely affected by COVID-19 and are now struggling to obtain medical supplies, including hand sanitizers. Several agents from these three countries have signed contracts to import these items for further distribution in their respective sales areas. One of the primary raw materials of MB hand sanitizer is camomile extract. To fulfill these raw materials, PTBM imports them from its supplier in Bulgaria, Rilla Monastery, Limited Co. PTBM management will further evaluate the prospect of establishing an international subsidiary in one of the three African countries. The following are various data on economic indicators both for export, import, and Indonesian destination countries:

Country/Currency	Today Spot Rate	Interest rate (the most recent period)	Inflation Rate (the most recent period)
Algeria Algerian Dinar, DZD	1 DZD = 115.41 IDR	3.35% p.a	1.7% p.a
Cameroon Central African CFA Franc XAF	1 XAF = 24.53 IDR	3.25% p.a	2.4
Egypt Egyptian pound EGP	1 EGP = 946.19 IDR	9.25% p.a	5.9
Bulgaria Bulgarian Lev BGL	1 BGL = 8237.13 IDR	1% p.a	3% p.a
Indonesia Indonesian Rupiah, IDR		4.50% p.a	3.49% pa

Financial analyst at PTBM, Mr. Rizki, has analyzed the exchange rate movements of the Rupiah against the currencies of PTBM business partners. From the analysis the following trends have been observed: 1. Whenever the Algerian Dinar appreciates against the IDR by more than 1%, it will experience a reversal of around 60% of that change on the following trading day. Today the DZD has appreciated by 3%. 2. Whenever CFA Franc appreciates against the IDR by more than 1%, it will experience a reversal of around 35% of that change on the following transaction day. Today XAF has appreciated by 2%. 3. Whenever Egyptian Pound depreciates against the IDR by more than 2%, it experiences a reversal of about 50% of that change on the following trading day. Today EGP has depreciated by 3% 4. Whenever Bulgarian Lev depreciates against the IDR by more than 2%, it experiences a reversal of about 45% of that change on the following trading day. Today BGL depreciated by 1% Using existing data, Mr. Rizki has also succeeded in formulating a forecasting model for the four foreign currencies, namely as follows:

eit = ao + a1Intt + a2 Inft-1 + t

where : eit = percentage change in currency exchange rate country i over period t

INTt = real interest rate differential over period t INFt1 = inflation differential in the previous period t a0, a1, a2 = regression coefficients t = error term with the estimation of each regression coefficients being as follows :

Problem 1A (15%) Which forecasting technique would be appropriate in forecasting the future value exchange rates of all of PTBMs business partner? Why?

Problem 1B (10%) Based on the information given, what will be the currency values of Algerian Dinar, CFA Frank, Egyptian Pound and Bulgarian Lev tomorrow? Assume interest rate parity holds for a 3-year horizon. What will be the forecasted values of Algerian Dinar, CFA Frank, Egyptian Pound, and Bulgarian Lev of the spot rate in 3 years? What percentage appreciations or depreciations do these forecasts imply over the coming three years period?

Problem 1C (15%) Based on the data presented above, using the fundamental forecasting technique, what will be the forecasted values of Algerian Dinar, CFA Frank, Egyptian Pound and Bulgarian Lev over the upcoming period.

Problem 2A (15%) Within the next six months, PTBM must pay a bill of 200,000 Bulgarian Lev, to settle their raw material purchase of the chamomile extract from various suppliers in Bulgaria. Regarding the data that has been prepared by Mr. Rizki, prepare hedging alternatives analysis for the outgoing cash flow. Which strategy would you choose? (Assume the following: all hedging transactions are available; use the market-based forecasting technique to determine the forward rate; PTBM can borrow IDR at the interest rate of 4.5% pa).

Problem 2B (15%) Over the next six months, PTBM will receive payment from various buyers in Africa, being the settlement of the receivables which are due. The amounts and currencies to be received are as follows: 3,500,000 Egyptian Pounds, 4,000,000 Algerian Dinars, and 4,000,000 CFP Francs. Based on data that has been prepared by Mr. Rizki, prepare the hedging alternatives analysis for the incoming cash flows. Which strategy would you choose? (Assumption: all hedging transaction alternatives are available, use market-based techniques to determine the forward rate, PTBM can borrow EGP at the interest rate of 9.5% p.a., also DZD at the interest rate of 4% pa, and CFA Francs at the interest rate of 3.5%) Prepare a hedging alternatives analysis. Based on data that has been prepared by Mr. Rizki, which strategy would you choose for each of the respective currencies?

Problem 3 (15%) Explain the various methods of payment that are commonly used for international trade transactions. Further explain what payment methods can PTBM choose for all of its international trade transactions, both when PTBM acts as an exporter and as well as when it acts an importer (consider the risk exposure borne by PTBM for the type of payment method chosen).

Problem 4 (15%) Explain the various types of financing methods used to support international transactions. Further, explain the financing methods appropriate for PTBM to support its international trade transactions.

INTE = real interest rate differential over periodt INFt-1 = inflation differential in the previous periodt a, a, az = regression coefficients H4 = error term with the estimation of each regression coefficients being as follows: Estimate Regression coefficient Algerian Dinar CFA franc Bulgarian Lev a. ai a2 0.002 -0.5 0.012 -0.3 Egyptian pound 0.05 0.2 -0.6 0.007 0.1 -0.05 0.7 0.5 In addition, Mr. Rizki and his team have also completed forecasting on the interest rate. The following are the possible outcomes of the interest rate for each currency at various probability distributions: Probability (96) Algerian Dinar (96) CFA franc (%) Estimate Egyptian pound (96) 9.25 9 Bulgarian Lev (9) Indonesian Rupiah (%6 5 3 30 50 1.5 1 3.25 4.5 3.25 3.5 20 3.50 9.5 0.8 4 Information about the currency options that have been collected is recorded as follows: Probability Bulgarian Lev Possible Spot Rate in 6 months Egyptian Algerian Dinar CFA Franc Pound 117.5 25.56 937.56 118.35 27.13 943.68 113.22 22.17 968.24 40 40 8335.12 8452.15 8124.44 20 Whereas the exercise prices for Call Options and Put Options are as follows: Call Option Currency Exercise Price (IDR) Premium (IDR) 116.20 Algerian Dinar CFA Franc Egyptian Pound Bulgarian Lev Put Option Exercise Price Premium (IDR) (IDR) 135, 20 20 24.45 10 962.24 20 8250.38 20 50 50 50 23.45 945.20 8236.34 50 INTE = real interest rate differential over periodt INFt-1 = inflation differential in the previous periodt a, a, az = regression coefficients H4 = error term with the estimation of each regression coefficients being as follows: Estimate Regression coefficient Algerian Dinar CFA franc Bulgarian Lev a. ai a2 0.002 -0.5 0.012 -0.3 Egyptian pound 0.05 0.2 -0.6 0.007 0.1 -0.05 0.7 0.5 In addition, Mr. Rizki and his team have also completed forecasting on the interest rate. The following are the possible outcomes of the interest rate for each currency at various probability distributions: Probability (96) Algerian Dinar (96) CFA franc (%) Estimate Egyptian pound (96) 9.25 9 Bulgarian Lev (9) Indonesian Rupiah (%6 5 3 30 50 1.5 1 3.25 4.5 3.25 3.5 20 3.50 9.5 0.8 4 Information about the currency options that have been collected is recorded as follows: Probability Bulgarian Lev Possible Spot Rate in 6 months Egyptian Algerian Dinar CFA Franc Pound 117.5 25.56 937.56 118.35 27.13 943.68 113.22 22.17 968.24 40 40 8335.12 8452.15 8124.44 20 Whereas the exercise prices for Call Options and Put Options are as follows: Call Option Currency Exercise Price (IDR) Premium (IDR) 116.20 Algerian Dinar CFA Franc Egyptian Pound Bulgarian Lev Put Option Exercise Price Premium (IDR) (IDR) 135, 20 20 24.45 10 962.24 20 8250.38 20 50 50 50 23.45 945.20 8236.34 50