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Essay / Research Paper Abstract
This 13 page paper answers three questions posed by the student. The first looks at a case where currency cannot be taken out of a country until it has been invested in bonds for 5 years and the impact that this would have in a company exporting to that company. The second question explains futures and options and how they can be used in hedging. The last question looks at the impact of borrowing on the NPV of a project and the impact on the debt asset profile of a company. The bibliography cites 1 source.
Page Count:
13 pages (~225 words per page)
File: TS14_TEexcase1.rtf
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Unformatted sample text from the term paper:
90 days and collecting payment in Transylvanian Farthings 30 days after shipment. This gives the company an period of 60 days in which they have the capital paid by the
purchaser but not yet paid to the suppliers. There has been the introduction of a new regulation that all goods need to be paid for by buyers in Transylvanian
in the Farthing and then the payment can only be used in the country, or may be converted into bonds that stay in the country. The difficulty appears to be
the way in which the Farthing is performing with the Transylvanian economy having an inflation rate of 40% and although the Farthing is pegged against the dollar, but has been
devalued from 200 farthings to the dollar to 300 farthings to the dollar. If the company have to keep the currency in Transylvania for a period of 5
years they need to look at the way in which they will minimise potential losses due to the need to hold currency here and the risk of devaluation. If we
consider the concept of purchasing parity it appears that there is the likelihood of more devaluations when the inflation rate is this high. If we look at the position
over the period of the devaluation the price would have been set with an assumed value of 200 farthings to the dollar, but when the time comes for the exchange
and the deviation has an impact we can see this has created a loss of 33%. This is shown below Table 1 Loss as a result of devaluation. Rate
for the quarter 150,000 Rate for the month 50,000 Price based in an exchange rate of 200 farthings to the dollar 10,000,000 Amount in dollars at 300 farthings to the
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