Blades Plc Parity Relations in International Finance

Topics: Foreign exchange market, Exchange rate, Pound sterling Pages: 4 (1144 words) Published: October 16, 2011
International Finance FIE433
Case Study 2 – Parity Relations in International Finance

Students should allocate themselves into Consultancy Teams of around four people (final confirmation of the number in each team to be given after student enrolment). Choose a unique business name for your team. All teams should be prepared to present their results/conclusions to the rest of the class. A printout of the presentation slides should be uploaded on Its Learning and made available to me at the start by ALL teams. I will then choose randomly the teams to give their presentations of no longer than 20 minutes on the assigned tasks during the tutorials. Emphasis should be put on the presentation of the key points and the overall professionalism of the presentation. Given limited time available, you do not have to answer all questions.

Blades plc Case Study
Assessment of Potential Arbitrage Opportunities
Recall that Blades, a UK manufacturer of roller blades, has chosen Thailand as its primary export target for “Speedos,” Blades’ primary product. Moreover, Blades’ primary customer in Thailand, Entertainment Products, has committed itself to purchase 180,000 Speedos annually for the next three years at a fixed price denominated in baht, Thailand’s currency. Because of quality and cost considerations, Blades also imports some of the rubber and plastic components needed to manufacture Speedos. Lately, Thailand has experienced weak economic growth and political uncertainty. As investors lost confidence in the Thai baht as a result of the political uncertainty, they withdrew their funds from the country. This resulted in an excess supply of baht for sale over the demand for baht in the foreign exchange market, which put downward pressure on the baht’s value. As foreign investors continued to withdraw their funds from Thailand, the baht’s value continued to deteriorate. Since Blades has net cash flows in baht resulting from its exports to Thailand, a...
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