1. How will Blades be negatively affected by the high level of inflation in Thailand if the Thai customer renews its commitment for another 3 years?
2. Holt believes that the Thai importer will renew its commitment in 2 years. Do you think his assessment is correct? Why or why not? Also, assume that the Thai economy returns to the high growth level that existed prior to the recent unfavorable economic events. Under this assumption, how likely is it that the Thai importer will renew its commitment in 2 years?
3. For each of the three possible values of the Thai baht and the British pound, use a spreadsheet to estimate cash flows for the next year. Briefly comment on the level of Blades’ economic exposure. Ignore possible tax effects. 4. Now repeat your analysis in question 3 but assume that the British pound and the Thai baht are perfectly correlated. For example, if the baht depreciates by 5 percent, the pound will also depreciate by 5 percent. Under this assumption, is Blades subject to a greater degree of economic exposure? Why or why not?
5. Based on your answers to the previous three questions, what actions could Blades take to reduce its level of economic exposure to Thailand?

MINI CASE

Blades, Inc., has been exporting to Thailand since its decision to supplement its declining U.S. sales by exporting there. Furthermore, Blades has recently begun exporting to a retailer in the United Kingdom. The suppliers of the components needed by Blades for roller blade production (such as rubber and plastic) are located in the United States and Thailand. Blades decided to use Thai suppliers for rubber and plastic components needed to manufacture roller blades because of cost and quality considerations. All of Blades’ exports and imports are denominated in the respective foreign currency; for example, Blades pays for the Thai imports in baht.