The boss of Evergreen Star, a Canadian company where you work, is about to sign a major
Question:
The boss of Evergreen Star, a Canadian company where you work, is about to sign a major contract with Greenbay Products, a Singaporean company. The contract is worth three million Canadian dollars, to be paid in three equal instalments. The first payment will be made by Greenbay to Evergreen in one year from today. The second payment will be made two years from today, and the third three years from today. Your boss has the choice of receiving three payments of C$1,000,000 each, or three payments of the equivalent amount in Singapore dollars fixed at today's exchange rate. He asks you which option he should choose.
Compare the exchange rate between the two currencies one year ago with the rate for today (you will need to do research for this) and assume that this trend will continue exactly the same over the next three years (i.e. that the annual rate of appreciation or depreciation will continue unchanged for the next three years).
- 1. Advise the boss which option to choose and why?
- 2. Calculate how much (in Canadian dollars) will be gained over the three years by choosing this option over the other one. Show all your working and provide your source of information for the exchange rate. State which date you have chosen as the base for your calculations (i.e. which date did you regard as 'today' in the question?).