Question

Foreign Currency Analysis
Country	Monetary Unit	Date 1	Dollar per Unit of Foreign Currency	Date 2	Dollar per Unit of Foreign Currency	Invoiced Units	Increase/ (Decrease)
Britain	Pound	9/17/2014	0.6162	10/17/2014	0.6245	10,000
Canada	Canadian dollar (CAD)					10,000
China	Renminbi					10,000
France	Euro					10,000
Japan	Japanese yen					10,000
Mexico	Mexican peso					10,000
he purchases order is submitted to your company when the goods were delivered but will be paid 30 days from that date in the currency you have selected Based on 10,000 invoiced units determine how much extra or less money would be required to pay the invoice in the foreign currency. The calculation will be based on the first rate (the time the goods were delivered) until the second rate (payment in 30 days). This increase/decrease would be due to exchange rate differences. Analyze what could be done to minimize the increase or decrease in cost due to exchange rate differences						Total

Answer 1

Our company has to pay 10000 pounds to the compoany that has raised the PO.

On 9/17/2014, the amount to be paid in Dollar is 10000 * (0.6162) = $6162

On 10/17/2014, the amount to be paid in Dollar is 10000 * (0.6245) = $6245

So the cost for our company will be increased by 83 (6245-6162).

To minimize the increase in cost due to exchange rate difference, we can hedge our risk using following ways:

1. Hedging using currency options.

2. Shared risk provisions

3. Currency switch provision

4. Currency freeze provision

5. Insurance provision