Appendix dorder - completed Essay Example for Free

Appendix dorder completed Essay 1. The exporter harbors some degree of anxiety because fluctuations in the exchange rate affect the real value of the currency used in trading. This might result in the exporter losing some money at the end of the day if the value of the currency falls. 2. The exporter can protect itself in the following ways: Hedging (Forward Exchange Market Hedge, Currency Options Hedges, Credit or Money Market Hedge), Acceleration or Delay of Payment, Exposure Netting and Price Adjustments. 3. The money market hedge involves borrowing money. This is based on a premise that the importer would pay for the goods bought at a certain date in the future. The exporter borrows the equivalent of the cost price of the goods being sold from a bank in the importer’s country, on the date of selling of the goods. He immediately converts this money to the currency in his own country, giving him the real value of the goods he sold. When the importer eventually pays him, he would use the money to settle the loan he got from the bank in the importer’s country. However, the exporter must make judicious use of the loan he got. He must invest it in his own country. Moreover, this depends on the prevailing interest rates in both the importer and exporter’s countries. The cost of might be too high if the interest rate is high in the importer’s country is higher than the amount the exporter con earn in his own country. 4. Acceleration or delay in payments is so important for international companies. The international company can use these as tools. These are tools that the International Company (IC) can use to protect itself against unwarranted losses arising as a result of fluctuations in the exchange rate market. The dynamics of the money market affects the IC but not these other small companies. 5. In this type of exposure netting, I would consider a strong currency and a weak currency. I would buy more of the strong currency hoping that the strength of that currency would balance out the weakness of the other currency. 6. The price adjustment device is important to the international company in the sense that he can use these instruments to protect himself (or herself) from the uncertainties of fluctuating exchange rates more importantly when an exporter is dealing with a customer in a country that has a weak currency. However, this must be done within legal limits. 7. They are important because as long as these gains or loses are accounting entries, they count against the importer / exporter if loses arise and the gains mean that more money is made eventually. 8. Yes, the parallel loan is a form of swap. The parallel loan involves two parent companies in different countries lending money to the subsidiary company of the other. The aim of this swap is to get the loan to the subsidiary company in the other country, in the currency of the subsidiary company. By so doing, the capital market is completely sidelined and no money is lost to the process of buying foreign currency. This loan swap in flexible because if it does not need guarantee from the parent company. If one of the companies defaults in payment, the other can withhold the payment. Also, it can involve more than two companies at the same time. 9. Countertrade is a type of transaction in which a buyer pays for the goods bought rather than in cash. It comes in various forms namely: Counterpurchase, Compensation, Barter, Switch, Offset and Clearing Account. A seller still decides to sell to a buyer who has no money as long as the seller can provide alternate means of payment though the above methods. In the long run, the seller still gets the value for his sales. 10. Inspection of the goods either at the point of manufacture or before they are exported from the developing country. This inspection is carried out by a trusted independent organization. Guarantee by banks is another way. By this, the bank guaranties the quality and delivery of the good from a bank in the developing country. With this, the bank supervises the process of manufacturing the goods, up to the point of packaging. By so doing, the bank does not have to pay for damages in when the contractual agreement is broken because there is a breach in the quality of the foods delivered. Reference Ball, D. A. , McCulloch, W. H. Jr. , Frantz, P. L. , Geringer, J. M. , Minor, M. S. (2006). International business: The challenge of global competition (10th ed. ). New York: McGraw-Hill.