Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem1) Using the information provided below, answer the problems that follow and show all your calculations.

Currency         Spot rate              1 month       3 months                6 months

USD/ZAR       8,1658/8,1783      495/585      1475/1595             2875/2985
EUR/USD      1,5436/1,5442             -                     -                       5/2
USD/CHF      1,2635/1,2640             -                 27/28                     -
GBP/USD     1,9814/1,9817          45/15         145/110                      -
AUD/USD         0,9012/0,9014     12/11               -                            -

1.1 At what rate will a South African importer buy Swiss francs 3 months forward?

1.2 At what rate will a South African exporter sell Australian dollars 1 month forward?

1.3 At what rate will a South African bank sell Euros 6 months forward, fully optional over six (6) months?

1.4 At what rate will a South African bank buy British pounds 3 months forward,optional over the second and third month?

Note 1: Remember that when an exporter sells, the bank buys and that when an importer buys, the bank sells.

Note 2: Satisfactory answers require a thorough understanding of spot buying and selling rates, cross rates and forward rates including the application of discounts and premiums.

problem2)

On 1 February, your company shipped a consignment of polyester fibres for industrial use, valued at USD 95 000, to a customer in the Far East. Using the exchange rates quoted below

• show all calculations in the form of bank account entries to your bank account for each of the transactions in the situations that follow.

• comment on the cash flows generated.

• comment on the final profitability of the whole deal measured against the original contract.

Date                     Spot USD/ZAR         1 month         2 months            3 months
1 February            7,9850/8,0018               -               950/1060                   -
1 April                   7,6782/7,6940               -                    -                  1475/1595
1 July                     7,5655/7,5815              -              930/1035                     -
1 August                7,9107/7,9270         495/585               -                           -
15 December          8,3960/8,4110    

a) Payment is expected on 1 April and you have asked your bank to cover this amount forward.

b) On due date, your customer lets you know that due to unforeseen circumstancespayment is delayed to 1 July.

c) In June, your customer informs you that part payment of USD 50 000 will be forthcoming on 1 July but with the balance of USD 45 000 rescheduled for 1September.

d) By 1 August, the spot rate has moved so much to your advantage that your decide to benefit from this trend and close out the contract.

e) Finally, your customer settles the outstanding amount of USD 45 000 on 15 December.

Note 1: Your bank account should include all the above transactions. In other words, one bank account for all transactions in order of the value/delivery dates.
Round all values to the nearest rand, that is, 50 cents or more upwards and less than 50 cents downwards. Ignore any interest implication.

Note 2: Regarding fixed date foreign exchange contracts, you are required to show a good grasp of swaps (extensions and early deliveries) and counter contracts.

Before you start calculating the forward rate applicable on 1 July, ask yourself what amount is automatically set-off against the 1st extension and what sum is left needing further attention (point c refers).

problem3) You, a consultant, have been asked by your client to give advice on what options are available on financing an export transaction.

Unfortunately, there are not that many and, in view of your client’s circumstances, the choice is limited to bank overdrafts and the pre-and post-shipment working capital finance facility offered by theIndustrial Development Corporation (IDC).

Task

You assist your client in describeing

• how a bank overdraft facility operates, and

• the finance structure of the IDC’s pre-and post-shipment working capital finance facility.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M93051

Have any Question? 


Related Questions in Basic Finance

Develop a three- to five-page analysis on the projected

Develop a three- to five-page analysis on the projected return on investment for your college education and projected future employment. This analysis will consist of two parts. Part 1: Describe how and why you made the ...

1 how much should you pay for a bond that pays a coupon of

1. How much should you pay for a bond that pays a coupon of 7%? The bond has a par value of $1,000 and will mature in 8 years. ( Round to the nearest dollar) 2. Huan Zhang bought a 10-year bond that pays 8.25% compounded ...

Why do higher interest rates lead to higher call option

Why do higher interest rates lead to higher call option prices but lower put option prices? Suppose a European put price exceeds the value predicted by put-call parity. How could an investor profit? Demonstrate that your ...

What is the current state of illicit financewhat are some

What is the current state of illicit finance? What are some examples of ways that we should consider how we define illicit finance? Both answers should be tied together with examples cited. Please contribute roughly 350- ...

In statistics you learn about type i and type ii errors a

In statistics, you learn about Type I and Type II errors. A Type I error occurs when a statistical test rejects a hypothesis when the hypothesis is actually true. A Type II error occurs when a test fails to reject a hypo ...

If brads stocks double in value over the next five years

If Brad's stocks double in value over the next five years, what annual return would he realize? (Hint: Use the future value table in Appendix C.) Based on his projected annualized return, would it be advisable to sell th ...

1 explain what a case study is discuss the limitations of

1. Explain what a case study is. Discuss the limitations of case studies for the study of human behavior. 2. What is systematic observation, and what techniques are used to make observations systematic? 3. What kinds of ...

1 describe and contrast the role of rfdc and rfid for

1. Describe and contrast the role of RFDC and RFID for logistics and supply chain applications. 2. Discuss the relative benefits of software purchase, use of third-party providers, and use of application service provider ...

If a companys use of debt financing increases as compared

If a company's use of debt financing increases, as compared to equity financing, what would you expect to find in terms of a change in return on equity if the company's return on assets remains the same? If a company has ...

The allied group is considering two investments the first

The Allied Group is considering two investments. The first investment involves a packaging machine, which can be used to package garments for shipping orders to customers. The second possible investment would be a moldin ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro