Jasmine LTD ----- Mr. Jordan has announced a five-year strategic plan which he calls 'Vision 2028'. Mr. Jordan has suggested that the company needs to restructure, reduce staffing, and crucially, focus on entering new markets in Europe. As part of Vision 2028, Mr. Jordan plans to introduce new environmentally friendly technology to manufacture drones and robots for the toy market; to develop a series of family orientated toys to encourage family bonding; and produce a new range of educational toys. He also has plans to improve the profitability of radio-controlled boats which have been a relatively new venture for the business. He has yet to discuss these plans with the Board, and although he knows he has been hired to provide a new direction for the company, he recognises that Vision 2028 will raise several concerns with his senior colleagues. He has asked you for your assistance in assembling a series of financial documents for the Board, which appear in Appendices.

In the context of 'Vision 2028', the new management is considering building a new factory in South Korea. The Korean subsidiary will require an initial investment of 200,000m South Korean Won (KRW). Jasmine can borrow money to finance this investment in the UK market, in France, or in South Korea. Appendix Q3 offers information about the borrowing costs in different currencies and an estimation of the future value of FX. Advise which is the best way to finance the Korean factory.

b.Mr. Jordan considers moving the Chinese factory to South Korea. Assess the risk exposure related to this relocation of production.

c.The research department of a large financial institution provided inflation expectations for the next five years. According to the forecasts, UK will have 1.75% more inflation than France and 3.5% higher inflation than South Korea. On the basis of this new evidence, would you reconsider your proposal with regard to financing the Korean factory? Explain your answer.

Initial investment (KRW)	200,000
Interest rate in UK (5-year loan)	0.09
Interest rate in South Korea (5-year loan)	0.15
Interest rate in France (5-year loan)	0.12
Spot exchange rate: KRW per GBP	2,000.00
Expected appreciation of GBP in relation to KRW	4% per annum
Forecasted exchange rate: EUR per GBP	1.18
Expected appreciation of GBP in relation to EUR	3% per annum

Jasmine has well established export markets but if the Board approves Vision 2028, it will begin to enter new markets abroad.

d.If Jasmine wants to borrow long-term funds to support its new foreign operations, what options does it have available to it?

e.What finance methods might Jasmine adopt to satisfy itself that it will be paid for shipping goods to new importers?

Answer rating: 100% (QA)

a To determine the best way to finance the Korean factory we need to consider the borrowing costs in different currencies and the future value of the exchange rates Given the interest rates and exchan... View the full answer