Worldwide ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS

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Worldwide ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS Sidney J. Dark , University of New South Wales Stephen B. Salter , University of Cincinnati Lee H. Radebaugh , Brigham Young University Gray, Salter & Radebaugh Chapter 2

CHAPTER TWO FOREIGN CURRENCIES AND EXCHANGE RISK MANAGEMENT Gray, Salter & Radebaugh Chapter 2

FOREIGN EXCHANGE RISKS AND SOLUTIONS Importing for Cash Problem Let's clarify with an illustration. Your firm, Alamo Computers of San Antonio, Texas, USA, wishes to get some PC motherboards. Here are three providers with costs in their nearby money. Dark, Salter & Radebaugh Chapter 2

FX RISKS & SOLUTIONS CONT'D Importing Goods for Cash Problem Gray, Salter & Radebaugh Chapter 2

FX RISKS & SOLUTIONS CONT'D Importing Goods for Cash Problem What do we do now? Figure the cost in a typical cash (US$ would be legitimate since you are US based organization). How would we do that? Get the cost in neighborhood money ( LCP ) for every area from the table. Isolate the LCP by the LC/US$ conversion standard or duplicate the LCP by the US$/LC swapping scale to get the US$ Price. See Tables 2.1 or www.oanda.com. Dim, Salter & Radebaugh Chapter 2

Table 2.1 US Dollar Exchange Rates in Number of Foreign Currency Units Per $ - T hursday October 7, 1999 Gray, Salter & Radebaugh Chapter 2

FX RISKS & SOLUTIONS CONT'D Importing Goods for Cash Gray, Salter & Radebaugh Chapter 2

FX RISKS & SOLUTIONS CONT'D Importing Goods for Cash Gray, Salter & Radebaugh Chapter 2

FX RISKS AND SOLUTIONS Importing Goods for Credit What on the off chance that you need to purchase using a loan? Will the swapping scale remain the same? Is Singapore still the least expensive provider? Dim, Salter & Radebaugh Chapter 2

Vendors permit you to pay in two-months be that as it may, the Singapore $ and British Pound are coasting monetary forms. FX RISKS AND SOLUTIONS Importing Goods for Credit Gray, Salter & Radebaugh Chapter 2

The British Pound Floats Gray, Salter & Radebaugh Chapter 2

The Singapore $ Floats Gray, Salter & Radebaugh Chapter 2

Table 2.3 Cost of Motherboards Using Credit Paying FC Two-Months After Purchase on September 28, 2005 Gray, Salter & Radebaugh Chapter 2

Table 2.3 Cost of Motherboards Using Credit Paying FC Two-Months After Purchase on September 28, 2005 Gray, Salter & Radebaugh Chapter 2

FX RISKS AND SOLUTIONS Importing Goods for Credit Can you shield yourself from vacillations in the conversion standard? You can kill the danger of FC changing in an incentive by utilizing a subsidiary. Subordinate is an agreement whose incentive in nearby cash changes with value developments in related ware or budgetary instrument, for example, a remote money Foreign Exchange (FX) Derivatives can incorporate forward contracts, fates, swaps and choices. Dim, Salter & Radebaugh Chapter 2

Derivatives Forward Contracts Forward contract between an outside cash dealer and a customer for the future deal or buy of remote money at a forward rate. Forward Rate authoritative rate between the FX merchant/customer for the measure of cash An expected to obtain one unit of money B at a settled future date. (Table 2.1) Gray, Salter & Radebaugh Chapter 2

Derivatives - Forward Contracts September 28, 2005 British Pound Per Dollar: Spot .5560 One Month Forward .5847 Two Months Forward .5848 Three Months Forward .5848 Gray, Salter & Radebaugh Chapter 2

Derivatives Forward Contracts Table 2.3 demonstrates the effect of applying the data on forward trade rates to the buy of motherboards. Dim, Salter & Radebaugh Chapter 2

Table 2.3 Cost of Motherboards Using Credit Paying FC Two-Months After Purchase on September 28, 2005 Gray, Salter & Radebaugh Chapter 2

Table 2.3 Cost of Motherboards Using Credit Paying FC Two-Months After Purchase on September 28, 2005 Gray, Salter & Radebaugh Chapter 2