A Brazillian coffee exporter has found a market for his coffee to the tune of 1,800,000 Euros. At the time of sale, the spot rate between Kenya shillings and Euros was ksh 126/Euro. The payment was expected after one month when the deal would be concluded. The interest rates in Kenya were 9% while in Germany they were 7%.per annum Required: 1. Advise the exporter after ascertaining the domestic currency appreciation or depreciation. 2. Suggest plausible non-financial hedging techniques to shield the exporter

A Brazillian coffee exporter has found a market for his coffee to the tune of 1,800,000 Euros. At the time of sale, the spot rate between Kenya shillings and Euros was ksh 126/Euro. The payment was expected after one month when the deal would be concluded. The interest rates in Kenya were 9% while in Germany they were 7%.per annum Required: 1. Advise the exporter after ascertaining the domestic currency appreciation or depreciation. 2. Suggest plausible non-financial hedging techniques to shield the exporter

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 1Q

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Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad. Current exchange rates in the home country of Gotohell are: Exchange rate : Euros Per dollar Spot : 4.1780-4.2080 6-month forward : 4.2302- 4.2606 12-month forward : 4.2825-4.3132 Required: a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate. b) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.
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