Rosevalley Corp in Hanoi, Vietnam exports leather goods to a handful of South East Asian countries. Alongside, Rosevalley also sells the leather items to local distributors and stores. Rosevalley prides itself on being a stable firm and a thorough hedging decision maker. The proportion of exposure to hedge for any overseas transaction is 65%. The company's forex policy allows the variance of 50% in excess of the minimum threshold level, in the event that there is an imminent devaluation or depreciation in exchange rates. Rosevalley considers the forward and the options market for exposure management purposes. Rosevalley has just shipped to its major Singaporean distributor. It has issued a 90-day invoice to its buyer for VND1,800,000. The current spot rate is SGD2.3142/VND; the 90-day forward rate is SGD2.3145/VND. Pablo Escobar is the treasurer of Rosevalley Corp, he has a very good track record in predicting exchange rate movements. He currently believes in the coming 90 days the ending spot rates may be the following: scenario (1) SGD2.310/VND and scenario (2) SGD2.3120/VND.

 

Required: (a) Critically discuss any FOUR (4) necessary strategies that Rosevalley Corp could adopt should a situation of allowance deminution be imposed for the firm.

Answer rating: 100% (QA)

Answer A devaluation occurs when a country makes a conscious decision to lower its exchange rate in a fixed or semifixed exchange rate Depreciation is when there is a fall in the value of a currency i... View the full answer