Long Life Enterprises was a well-established Toronto-based company engaged in the importation and wholesale marketing of specialty
Question:
Although Canada has extensive trading relationships with several countries in the Pacific Rim, these transactions were not normally priced or settled in terms of the Canadian dollar. Both the U.S. dollar and the Japanese yen were somewhat more common in these transactions. Further, various local currencies were involved, especially for small transactions involving specialty items, and a wide variety of credit terms were in use for both imports and exports. The entire situation was complicated by the perishable nature of some of the imports and the high mortality risk for both lobster and crab. Both situations led to uncertainty as to the face amount of the associated receivable or payable and hindered the ability of the firm to adopt the policy of specific hedging of each of the receivable or payable contracts.
Required:
What steps would you propose to the management of Long Life Enterprises to reduce the foreign exchange costs associated with their receivables and payables? As a part of this process, suggest a way of structuring transactions or affairs that would reduce the impact of fluctuations in the relative values of currencies.
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Related Book For
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell
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