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

Explain why a call option with zero exercise price is

Explain why a call option with zero exercise price is equivalent to the underlying stock, assuming no dividends on the stock during the life of the option? Why might two calls or puts alike in all respects but time to ex ...

What is the primary role of the bolts in a bolted joint why

What is the primary role of the bolts in a bolted joint? Why do many designers of safety related joints, and most codes, favor joints that could support four or more times the anticipated service loads? You have roughed ...

Suppose your firm had issued a 12 percent annual coupon

Suppose your firm had issued a 12 percent annual coupon, 15-year bond, callable at par at the 8th year. It is now two years later, so the bonds are not callable for another 6 years. At this time, new bonds could be issue ...

How do you explain the highly politicized nature of share

How do you explain the highly politicized nature of share issue privatization (SIP) pricing and share allocation policies? Are governments maximizing offering proceeds, or are they pursuing primarily political and econom ...

Explain how the repurchase agreement plays a role in the

Explain how the repurchase agreement plays a role in the pricing of futures contracts. What is the implied repo rate? Identify and explain some factors that make the execution of stock index futures arbitrage difficult i ...

Why would an mnc consider examining only its lsquonet cash

Why would an MNC consider examining only its ‘net' cash flows in each currency when assessing its transaction exposure? Are currency correlations perfectly stable over time? What does your answer imply about using past d ...

1 what are the stanton and peclet numbers and how are they

1. What are the Stanton and Peclet numbers and how are they related to other convective mass-transfer dimensionless numbers? 2. In applying dimensional analysis to explain mass-transfer coefficient, one must consider the ...

1 name possible mortgageable interests in real estate and

1. Name possible mortgageable interests in real estate and comment on their risk as collateral to lenders. 2. What is meant by mortgage foreclosure, and what alternatives are there to such action? 3. Explain the differen ...

1 since the 1960s which measure of the money supply has

1. Since the 1960s, which measure of the money supply has grown more rapidly, M1 or M2? Briefly explain why this is the case. Has the growth of M1 been more or less stable than the growth rate of M2? 2. Define liquidity. ...

1 historically what types of risk were the focus of most

1. Historically, what types of risk were the focus of most firms' risk- management practices? 2. Distinguish between the motivations for purchasing insurance and the motivations for hedging marketwide sources of risk. 3. ...

  • 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