Mark receives an order for Euro 25 million worth of machinery from one of his clients...
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Mark receives an order for Euro 25 million worth of machinery from one of his clients in Singapore. The specific equipment is manufactured and exported from Germany. Mark has mostly imported machines from China, Korea, and Japan, and occasionally from Austria but never Germany. He inquires and identifies a German exporter Gunther -- who is willing to do business with Mark. Gunther can supply the machines in 120 days and expects payment on delivery in Euro. 1) What are the risks Mark faces in entering this deal with Gunther? Give details. 2) How can Mark mitigate the SGD / Euro exchange rate risk? Explain what he should do. Will he make a profit or loss on the exchange conversion? Clearly show your calculations by using the following information: Assume the spot rate $1 today is SGD 1.45= 1 Euro and the forward rate today for payment 120 days down the road F120 is SGD 1.46 = 1 Euro. There are anticipations that the SGD will depreciate by 2 % against the Euro in the next 120 days. Mark receives an order for Euro 25 million worth of machinery from one of his clients in Singapore. The specific equipment is manufactured and exported from Germany. Mark has mostly imported machines from China, Korea, and Japan, and occasionally from Austria but never Germany. He inquires and identifies a German exporter Gunther -- who is willing to do business with Mark. Gunther can supply the machines in 120 days and expects payment on delivery in Euro. 1) What are the risks Mark faces in entering this deal with Gunther? Give details. 2) How can Mark mitigate the SGD / Euro exchange rate risk? Explain what he should do. Will he make a profit or loss on the exchange conversion? Clearly show your calculations by using the following information: Assume the spot rate $1 today is SGD 1.45= 1 Euro and the forward rate today for payment 120 days down the road F120 is SGD 1.46 = 1 Euro. There are anticipations that the SGD will depreciate by 2 % against the Euro in the next 120 days.
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Related Book For
Fundamentals Of Financial Management
ISBN: 9780273713630
13th Revised Edition
Authors: James Van Horne, John Wachowicz
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