REQUIREMENT: READ THE CASE STUDY ATTACHED BELOW AND ANSWER THE QUESTIONS BELOW

1. How could a higher level of inflation in Thailand affect Blades (assuming U.S. inflation remains constant)? 2. How could competition from firms in Thailand and from U.S. firms conducting business in Thailand affect Blades?BLADES, INC., CASE Exposure to International Flow of Funds Ben Holt, chief financial officer (CFO) of Blades, Inc., about 4 percent of Blades' cost of goods sold is attribut- has decided to counteract the decreasing demand for able to rubber and plastic imported from Thailand. Speedos roller blades by exporting this product to Blades faces little competition in Thailand from Thailand. Furthermore, due to the low cost of rubber other U.S. roller blades manufacturers. Those competi- and plastic in Southeast Asia, Holt has decided to tors that export roller blades to Thailand invoice their import some of the components needed to manufacture exports in U.S. dollars. Currently, Blades follows a pol- Speedos from Thailand. Holt believes that importing icy of invoicing in Thai baht (Thailand's currency). Holt rubber and plastic components from Thailand will believes that this strategy will give Blades a competitive provide Blades with a cost advantage (the components advantage because Thai importers can plan more easily imported from Thailand are approximately 20 percent when they do not have to worry about paying differing cheaper than similar components in the United States). amounts due to currency fluctuations. Furthermore, Currently, approximately $20 million (10 percent) of Blades' primary customer in Thailand (a retail store) Blades' sales is provided by its sales in Thailand. Only has committed itself to purchasing a certain amountof Speedos annually if Blades will invoice in baht for a period of three years. Blades' purchases of components from Thai exporters are currently invoiced in Thai baht. Holt is content with the current arrangements and believes the lack of competitors in Thailand, the quality of Blades' products, and its approach to pricing will ensure Blades' success in the Thai roller blades market in the future. Holt also believes that Thai importers will prefer to work with Blades, rather than its competitors, because Blades invoices in Thai baht. As Blades' financial analyst, you have doubts about Blades' "guaranteed" future success. Although you believe Blades' strategy for its Thai sales and imports is sound, you are concerned about current expectations for the Thai economy. Current forecasts anticipate a high level of inflation, a decreasing level of national income, and a continued depreciation of the Thai baht. In your opinion, these expected developments could negatively affect Blades' financial position given the company's current arrangements with its suppliers and with the Thai importers. Both Thai consumers and firms might adjust their spending habits should certain developments occur