Ch22_SSol - Problem 22.1 Quinlan Company a. Draw a cash...

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Problem 22.1 Quinlan Company a. Draw a cash flow diagram for this transaction in the style of Exhibit 22.1 and explain the steps involved. Working capital techniques. Quinlan accepted foreign exchange risk by quoting its sales price in the foreign currency (Polish zloty) equivalent of its €10,000,000 sales price. The following techniques might have been used by Quinlan in managing its currency exposure: 1. Quinlan might have denominated its offer in euros rather than zloty. Of course, this increases the possibility it might not receive the order. 2. If the offer had to be denominated in zloty for competitive reasons, Quinlan might have purchased a put option to deliver zloty against euros on April 1st. If the order were received, the put would provide some protection against deterioration of the zloty during the month of March, and if the order were not received the put could be sold in the market. 3. The March 1st offer might also have had a deadline by which it has to be accepted, perhaps two weeks, although competition would influence this. 4.
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This note was uploaded on 07/27/2011 for the course ECON 101 taught by Professor Dr. during the Spring '11 term at Columbia Union.

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Ch22_SSol - Problem 22.1 Quinlan Company a. Draw a cash...

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