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Essay / Research Paper Abstract
This 4 page paper looks at a case supplied by the student; A US firm has earnings expected in Germany and China with the need to repatriate Euros and Yuan. The paper looks at the spot and forwards rates for the currencies and how they may change, The use of the spot rates, forwards and swaps are then discussed. The potential tax implications are also outlined. The bibliography cites 6 sources.
Page Count:
4 pages (~225 words per page)
File: TS65_TErepatexc.doc
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Unformatted sample text from the term paper:
Looking first at the income that is due from Germany which is to be earned in Euros, the current spot exchange rate is 1.2889 dollars to 1 euro (OANDA, 2012).
The forward exchange rate is currently 1.216 dollars to 1 euro. This will give the following ; Figure 1; Spot and future exchange rate calculation for repatriation of the Euro
Amount to be exchanged (a) Exchange rate (b) (Amount of dollars to the Euro) Realized value (a x b) Spot rate ?100,000,000 1.2889 $128,890,000 Forward rate ?100,000,000 1.216
$121,600,000 Difference $7,290,000 From this it is possible to see that there is the expectation that the dollar will get stronger, this means it will take more Euros
to by a dollar. The impact is to reduce the dollar value of the Euros in a years time, with the projected rate indicating a reducing in dollar value of
$7,290,000. When looking at the return on sales (ROS), if measured in the local currency this will remain the same. This is the most likely scenario as the cost
of goods is likely to have been incurred locally in Euros, so the return on sales will remain the same. However, if it is measured in dollars, if the existing
$128,890,000 is providing a 12% ROS, it would mean the actual sales were $10,74,083,333 and with the reduced return on sales being 11.32% as the costs were incurred at the
earlier rate while the repatriation is at the lower rate. Looking at the Chinese Yuan and the projection of 650 million the same process may be undertaken. The current
spot rate for the 6.253800 Yuan to 1 dollar (XE.com, 2012). The future rate is more difficult to assess, as the Yuan is not a true floating currency, but has
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