Question 16

A Russian businessman is considering purchasing equipment from South Korea. The equipment must be installed in a plant in Russia upon its receipt. In order to help this businessman assess the risks and challenges of buying equipment from a foreign supplier, explain the different type of FX rate exposure the Russian has relative to financial security traders by addressing the following points.

a. The liquidity of the Russian's investment relative to buying a stock.

b. During the period of time it takes for the good to be manufactured and shipped, the importer gains when the currency __________ (appreciates/depreciates). EXPLAIN!!

c. The first phase of the transaction, when the importer is waiting for the goods to manufactured and shipped, is analogous to a _______ (short/long) security position. EXPLAIN!!

d. If the goods are to be sold in the foreign country, the Russian will gain when the won __________ (appreciates/depreciates/indifferent). EXPLAIN!!

e. If the goods are to be sold in Russia, the manufacturer will gain when the won __________ (appreciates/depreciates/indifferent). EXPLAIN!!