Question: Question 3 Based on the information given in Appendix Q3.1, answer the following question. Mr Jordan is considering moving the Chinese factory to South Korea.

Question 3

Based on the information given in Appendix Q3.1, answer the following question.

Mr Jordan is considering moving the Chinese factory to South Korea. What are the risks that would be caused by relocating production?

Appendix Q3.1: Borrowing costs, exchange rates and expected appreciation of currencies

Table 5: Borrowing costs
Initial investment (KRW) 160,000
Interest rate in UK (5-year loan) 8% per annum
Interest rate in South Korea (5-year loan) 16% per annum
Interest rate in France (5-year loan) 10% per annum
Spot exchange rate: KRW per GBP 1,600.00
Expected appreciation of GBP in relation to KRW 5% per annum
Spot exchange rate: EUR per GBP 1.20
Expected appreciation of GBP in relation to EUR 3% per annum

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