You have been appointed as an advisor to a renowned clothing distributor $($VCL$)$ in Australia $($a

fictitious company$).$ The corporation holds a portfolio of well$-$known clothing brands that are

protected by international patent law.

The company currently engages in export and import activities using a well$-$linked international

network of agents. The company's product is distributed in North America, the European Union

and a few Asian countries through its own retailing network. This network is operated by its

subsidiaries established in those countries $($USA$,$ Canada, the European Union, India, Malaysia,

Thailand and Sri Lanka$).$

The recent global economic down turns have had a severe impact on both the firm's operations

and cash flow conditions. The firm's capacity to manage its cash flow positions has been

hampered in particular by the considerable volatility of the local currency value in the foreign

exchange market. In light of this, the corporation has opted to rethink its foreign trade and financial

strategy. On this background, VCL requests your aid in refining its present foreign currency

transaction strategy as a specialist in international finance and banking.

The firm currently invoices its exports in the currencies of its trading partners. Its foreign suppliers

usually invoice in United States dollars. VCL is allowed four months to settle their suppliers$$

invoices. Its foreign buyers have been given $60$ days to settle their invoices.

The fluctuation of foreign currency values against the AUD has forced the company to rethink its

export invoicing policy. Because the company's overseas suppliers issue invoices in USD, the

marketing manager advises utilizing USD as the company's trading currency. Nonetheless, the

production manager emphasized that invoicing both export and import in AUD would assist the

company in eliminating all potential foreign exchange risks. The company's management has

asked you to assess the strengths and drawbacks of all available options for dealing with the

negative impact of currency fluctuations.

The company now sources clothing materials from Thailand and India. According to a feasibility

analysis performed last year, building a manufacturing facility in India would provide a significant

cost benefit. Therefore, VCL plans to establish a new production facility in India through. For this

purpose, separate two subsidiaries will be formed in India. The new facilities will be used to

expand the distribution to Europe. Alternately, the marketing manager suggests opening a buying

office in India and sourcing clothing from small local producers. He stated that such a plan would

assist the corporation in reducing its capital commitment to foreign investments.

VCL$$s policy is to review the cash flow situation of all its subsidiaries every three months and remit

any excess cash balances to the head office in Australia. Currently, excess cash is transferred at

any time whenever the foreign subsidiaries' cash balances exceed the allowed limit$.$

Consequently, the parent company in Australia transfers cash to the subsidiaries whe.

$7.$ Estimate the following exchange rates that you have used for part $2.$ You are required to

present and interpret the summary statistics $($not all data$)$ in your Witten assignment. You

need separately submit an EXCEL worksheet with all your detailed calculations with Excel

functions or formulas you used.

i$.$ The weekly exchange rate changes $($percentage changes$)$

ii$.$ Averages, standard deviations, and correlation matrix for weekly exchange rate

changes for the whole period $($starting with $01/10/2020)$

iii. Averages and standard deviations for weekly exchange rate changes for each sixmonth period $($starting with $01/10/2020)$

iv$.$ Averages and standard deviations for weekly exchange rate changes for each $12-$

month period $($starting with $01/10/2020)$

v$.$ Correlation of weekly foreign exchange rate changes among three currencies in

each $6-$month and $12-$month periods $($starting with $001/10/2020)$

vi$.$ Estimate value at risk $($VaR$)$ in $95\%$ probability under all the time horizons you

used for calculating averages and standard deviations. Use the estimated VaRs to

explain the foreign exchange rate exposures faced by VCL$.$

vii. Use the estimated VaR to illustrate the probable foreign exchange exposure

of the company on its allowed customer credit period and the proposed

credit period. Explain.

viii. Critically evaluate movements of estimated average and standard deviation

values and the correlation coefficients over time. How such movements are

important in managing foreign exchange risk. You need to link your

discussions with parts $1$ and $4$ of task three of this assignment.