Cost of machine on 1 st April 90000150 6000 On 30 th June the cost could be i

# Cost of machine on 1 st april 90000150 6000 on 30 th

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Cost of machine on 1 st April = \$90,000/1.50 = £ 6,000 On 30 th June the cost could be (i) \$9,000/1.60 = £5,625 (ii) \$9000/1.40 = £6428.57 (a) The firm would be exposed to transaction risk The effect of an exchange rate changes on outstanding obligations that existed before exchange rates changed but were settled after the change. (b) The financial implication of each case: Case i The pound appreciates to \$1.60/£ Financial gain (£6,000 5,625) = £375 Case ii The pound depreciates to \$1.40/£ Financial loss (£6,000 6,428 .57) = £428 .57 (c) Foreign exchange exposure management techniques - Forward exchange contract - Currency borrowing - Currency netting - Currency option - Currency swap - Currency futures Question 5 One of your bank’s customers is anxious to obtain supplies of Rentinus FMDXC from Indonesian throu gh a merchant in England. Your customer has compared prices in other parts of Europe, Asia and America. He discovered that prices from America, particularly the U.S.A, are relatively cheaper. He decided to accept the U.S.A quotation, despite the payment in advance terms.