Q1 Bedouin Comfort needs to order supplies two months ahead of the delivery date. It is considering an order from a Chinese supplier that requires a payment of 0.5 million yuan payable as of the delivery date. Bedouin Comfort has two choices:

• Purchase two call options contracts (since each option contract represents 250,000 yuan).
• Purchase one futures contract (which represents 0.5 million yuan).
• The firm would like to use currency options to hedge payables in Chinese yuan for transactions two months in advance. Bedouin Comfort would prefer hedging its yuan payable position because it is uncomfortable leaving the position open given the historical volatility of the yuan. Jawahar Aldossary, Bedouin Comforts finance director, would like to use an exercise price that is about 5 percent above the existing spot rate to ensure that Bedouin Comfort will have to pay no more than 5 percent above the existing spot rate for a transaction two months beyond its order date.

1.) Should Bedouin Comfort allow its yuan position to be unhedged? Describe the trade-off.???????????

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Q2 As the chief financial officer of Bedouin Comfort Juwaher Aldossary is pleased that his current system of exporting Arabic furniture to India seems to be working well. Bedouin Comforts primary customer in India, a large furniture chain, has committed itself to purchasing a fixed number of sofas annually for the next three years at a fixed price denominated in rupee, Indias currency. Furthermore, Bedouin Comfort is using an Indian supplier for some of the wood needed to manufacture furniture. Nevertheless, Juwaher is concerned about recent developments in Asia. Foreign investors from various countries had invested heavily in India to take advantage of the high interest rates there. As a result of the weak economy in India, however, many foreign investors have lost confidence in India and have withdrawn their funds. In addition, inflation has been relatively high in India.

Juwaher Aldossary has two major concerns regarding these developments. First, she is wondering how these changes in Indias economy could affect the value of the Indian rupee and, consequently, Bedouin Comfort. Second, Juwaher believes that Bedouin Comfort may be able to speculate on the anticipated movement of the rupee, but she is uncertain about the procedure needed to accomplish this. To facilitate Juwahers understanding of exchange rate speculation, she has asked you, Bedouin Comforts financial analyst, to provide her with detailed illustrations. Juwaher is assuming the rupee would move from a current level of 0.051 SAR to 0.048 SAR within the next 30 days. Based on Juwahers needs, she has provided you with the following list of questions to be answered:

2.) How might the relatively high level of inflation in India affect the rupees value? Explain your answer using demand and supply analysis. (Assume a constant level of Saudi inflation)????????

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Q3 As the chief financial officer of Bedouin Comfort Juwaher Aldossary is pleased that his current system of exporting Arabic furniture to India seems to be working well. Bedouin Comforts primary customer in India, a large furniture chain, has committed itself to purchasing a fixed number of sofas annually for the next three years at a fixed price denominated in rupee, Indias currency. Furthermore, Bedouin Comfort is using an Indian supplier for some of the wood needed to manufacture furniture. Nevertheless, Juwaher is concerned about recent developments in Asia. Foreign investors from various countries had invested heavily in India to take advantage of the high interest rates there. As a result of the weak economy in India, however, many foreign investors have lost confidence in India and have withdrawn their funds. In addition, inflation has been relatively high in India.

Juwaher Aldossary has two major concerns regarding these developments. First, she is wondering how these changes in Indias economy could affect the value of the Indian rupee and, consequently, Bedouin Comfort. Second, Juwaher believes that Bedouin Comfort may be able to speculate on the anticipated movement of the rupee, but she is uncertain about the procedure needed to accomplish this. To facilitate Juwahers understanding of exchange rate speculation, she has asked you, Bedouin Comforts financial analyst, to provide her with detailed illustrations. Juwaher is assuming the rupee would move from a current level of 0.051 SAR to 0.048 SAR within the next 30 days. Based on Juwahers needs, she has provided you with the following list of questions to be answered:

3.) How might the relatively high interest rates in India affect the rupees value? Explain your answer using demand and supply analysis. (Assume a constant level of Saudi interest rates)????????????

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Q4 As the chief financial officer of Bedouin Comfort Juwaher Aldossary is pleased that his current system of exporting Arabic furniture to India seems to be working well. Bedouin Comforts primary customer in India, a large furniture chain, has committed itself to purchasing a fixed number of sofas annually for the next three years at a fixed price denominated in rupee, Indias currency. Furthermore, Bedouin Comfort is using an Indian supplier for some of the wood needed to manufacture furniture. Nevertheless, Juwaher is concerned about recent developments in Asia. Foreign investors from various countries had invested heavily in India to take advantage of the high interest rates there. As a result of the weak economy in India, however, many foreign investors have lost confidence in India and have withdrawn their funds. In addition, inflation has been relatively high in India.

Juwaher Aldossary has two major concerns regarding these developments. First, she is wondering how these changes in Indias economy could affect the value of the Indian rupee and, consequently, Bedouin Comfort. Second, Juwaher believes that Bedouin Comfort may be able to speculate on the anticipated movement of the rupee, but she is uncertain about the procedure needed to accomplish this. To facilitate Juwahers understanding of exchange rate speculation, she has asked you, Bedouin Comforts financial analyst, to provide her with detailed illustrations. Jawahar is assuming the rupee would move from a current level of 0.051 SAR to 0.048 SAR within the next 30 days. Based on Juwahers needs, she has provided you with the following list of questions to be answered:

4.) How would Bedouin Comfort be affected by a deprecation in the rupee??????