Fix Prize Agreement
4. Would any of the hedges you compared in question 2 for the British pounds to be received in 90 days require Blades to overhedge? Given Blades’ exporting arrangements, do you think it is subject to overhedging with a money market hedge?
Since Ben Holt want to hedge all the exposure and there are 31,250 pounds in a put option. However, Blades will receive 4,000,000 pounds in 90 days and it will need to purchase 128 put options to cover this exposure. In this case, none of the hedges would require to overhedge.
Because the fix price agreement with british and thai retailers, it make that the actual amount received in the future will same from the expected amount. So it’s not subject t to overhedging with a money market hedge.
5. Could Blades modify the timing of the Thai imports in order to reduce its transaction exposure? What is the tradeoff of such a modification?
Since Blades received baht revenue of 45,000 × 4,594 = 206,730,000 this quarter. It could import enough material to make 206,730,000/3,000 = 68,910 pairs of Speedos in the current quarter. It can also make the Thai costumer do the direct payment to their Thai suppliers. For this quarter, blades could set up additional expense to accommodate their higher inventory. It because blades inventory position will be high in this quarter. And also tradeoff of accelerating the purchases from Thailand can reduce Blades transaction exposure this quarter because the transaction exposure for the next quarter will be higher.
6. Could Blades modify its payment practices for the Thai imports in order to reduce its transaction exposure? What is the tradeoff of such a modification?
Yes, Blades could. For this time Blades pay their Thai supplier earlier 60 days than their competitors. If depreciation happen in term more than this 60 days. It could make lower dollar cost in Blades if there is lagging payment.
The tradeoff result from this lagging payment to their Thai suppliers is Blades cant use Baht cost to
Since Ben Holt want to hedge all the exposure and there are 31,250 pounds in a put option. However, Blades will receive 4,000,000 pounds in 90 days and it will need to purchase 128 put options to cover this exposure. In this case, none of the hedges would require to overhedge.
Because the fix price agreement with british and thai retailers, it make that the actual amount received in the future will same from the expected amount. So it’s not subject t to overhedging with a money market hedge.
5. Could Blades modify the timing of the Thai imports in order to reduce its transaction exposure? What is the tradeoff of such a modification?
Since Blades received baht revenue of 45,000 × 4,594 = 206,730,000 this quarter. It could import enough material to make 206,730,000/3,000 = 68,910 pairs of Speedos in the current quarter. It can also make the Thai costumer do the direct payment to their Thai suppliers. For this quarter, blades could set up additional expense to accommodate their higher inventory. It because blades inventory position will be high in this quarter. And also tradeoff of accelerating the purchases from Thailand can reduce Blades transaction exposure this quarter because the transaction exposure for the next quarter will be higher.
6. Could Blades modify its payment practices for the Thai imports in order to reduce its transaction exposure? What is the tradeoff of such a modification?
Yes, Blades could. For this time Blades pay their Thai supplier earlier 60 days than their competitors. If depreciation happen in term more than this 60 days. It could make lower dollar cost in Blades if there is lagging payment.
The tradeoff result from this lagging payment to their Thai suppliers is Blades cant use Baht cost to