Calculate the FX position of Company A based on the values in the following chart. Explain the
Question:
Calculate the FX position of Company A based on the values in the following chart. Explain the benefits
this company will experience according to its FX position.
FOREIGN EXCHANGE POSITION (IN USD) | |
Confirmed exposure | |
Cash | 340,000 |
Accounts receivable | 1,200,000 |
Firm orders - sales | 6,400,000 |
Accounts payable | (155,000) |
Firm orders - purchases | (1,500,000) |
Other confirmed receipts 0 | 0 |
Other confirmed disbursements | 0 |
Confirmed Exposure |
|
Unconfirmed Exposure | |
Expected sales | 15,250,000 |
Expected purchases | (2,040,000) |
Other expected receipts | 0 |
Other expected disbursements | 0 |
Unconfirmed Exposure |
|
Total exposure |
|
Foreign exchange contracts |
|
FX forward contracts used to sell U.S. dollars | (5,200,000) |
FOREIGN EXCHANGE POSITION |
|
Part B: Identify and describe four types of political risks giving an example of a country which exhibit each. 4 points
Part C: A Swedish travel services company is analyzing the feasibility of opening a branch office in Malaysia. They have developed the following economic risk profile: 6 points
Risk | Likelihood/Probability | Severity of impact | Threat Value | Rank (1-3) |
Negative economic growth | Remote | Critical |
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|
Unfavourable exchange controls | Remote | Serious |
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|
Implementation of new unfavourable laws or trade agreements | Occasional | Catastrophic |
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a. Complete the chart with the associated threat values.
b. Rank the risks in order of priority.
c. If the organization decides to introduce strategies to reduce its economic risk, what is one strategy that it could implement?