Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 2: Bentley LLC manufactures British sports cars, a number of which are exported to New Zealand for payment in pounds sterling. The distributor sells

image text in transcribed
Question 2: Bentley LLC manufactures British sports cars, a number of which are exported to New Zealand for payment in pounds sterling. The distributor sells the sports cars in New Zealand for New Zealand dollars. The New Zealand distributor is unable to carry all of the foreign exchange risk, and would not sell Bentley models unless Bentley could share some of the foreign exchange risk. Bentley has agreed that sales for a given model year will initially be priced at a "base" spot rate between the New Zealand dollar and pound sterling set to be the spot mid-rate at the beginning of that model year. As long as the Ictual exchange rate is within 27.5% of that base rate, payment will be made in pounds sterling However, in the spot rate at time of shipment talls outside of this +75% range, Bentley will share equally the difference as part of the risk sharing agreement. For the current model year, the base rate is NZ$17500/. (a) What are the outside ranges within which the New Zealand importer must pay at the then current spot rato? (2 marks] (b) i Bentley thips 25 sports cars to the New Zealand distributor at a time when the spot exchange rate is NZ$1,4500/, and each car has an invoice cost 60,000, what will be the cost to the distributor in New Zealand dollars? (3 marks] (C) If Bentley Automotive ships the same 25 cars to New Zealand at a time when the spot exchange rate is NZ$1.9000/, how many New Zealand dollars will the distributor pay? [3 marks] (d) When would you use a back-to-back loan as part of managing operating exposure? [2 marks]

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Production And Operations Analytics

Authors: Steven Nahmias, Tava Lennon Olsen

8th Edition

1478639261, 9781478639268

More Books

Students also viewed these Finance questions