EECS 3101 Lecture Notes - Lecture 4: Sports Equipment, Thai Baht, Spot Contract
28 Jun 2018
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EECS 3101 Lecture 4 Notes
Introduction
Use of the Foreign Exchange Markets by the Sports Exports Company
You interpret the high interest rates in Thailand as an indication of the uncertainty
resulting from Thailand’s unstable economy.
Holt asks you to assess the feasibility of investing Blades’ excess funds from Thailand
operations in Thailand at an interest rate of 15 percent.
After you express your opposition to his plan, Holt asks you to detail the reasons in a
detailed report.
One point of concern for you is that there is a trade-off between the higher interest
rates in Thailand and the delayed conversion of baht into dollars.
Explain what this means.
If the net baht received from the Thailand operation are invested in Thailand, how will
U.S. operations be affected?
Assume that Blades is currently paying 10 percent on dollars borrowed and needs more
financing for its firm.
Construct a spreadsheet to compare the cash flows resulting from two plans.
Under the first plan, net baht-denominated cash flows (received today) will be invested
in Thailand at 15 percent for a 1-year period, after which the baht will be converted to
dollars.
The expected spot rate for the baht in 1 year is about $.022 (Ben Holt’s plan).
Under the second plan, net baht-denominated cash flows are converted to dollars
immediately and invested in the United States for 1 year at 8 percent.
For this question, assume that all baht-denominated cash flows are due today.
Does Holt’s plan seem superior in terms of dollar cash flows available after 1 year?
Compare the choice of investing the funds versus using the funds to provide needed
financing to the firm.
Document Summary
Use of the foreign exchange markets by the sports exports company. You interpret the high interest rates in thailand as an indication of the uncertainty resulting from thailand"s unstable economy. Holt asks you to assess the feasibility of investing blades" excess funds from thailand operations in thailand at an interest rate of 15 percent. Compare the choice of investing the funds versus using the funds to provide needed financing to the firm. Each month, the sports exports company (a u. s. firm) receives an order for footballs from a british sporting goods distributor. To assess the feasibility of investing blades" excess funds from thailand operations in. Thailand at an interest rate of 15 percent. After you express your opposition to his plan, holt asks you to detail the reasons in a detailed report. One point of concern for you is that there is a trade-off between the higher interest rates in thailand and the delayed conversion of baht into dollars.
