International Finance Assignment
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Added on 2021-04-20
International Finance Assignment
Added on 2021-04-20
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Running head: INTERNATIONAL FINANCEInternational FinanceName of the Student:Name of the University:Authors Note:
INTERNATIONAL FINANCE1Table of ContentsPART A:.....................................................................................................................................2Answer to question 1..................................................................................................................2Answer to question 2..................................................................................................................2Answer to question 3..................................................................................................................3PART B:.....................................................................................................................................5Answer to question 2..................................................................................................................7Answer to question 3..................................................................................................................8Reference....................................................................................................................................9
INTERNATIONAL FINANCE2PART A:Answer to question 1. Apparently, the interest rate prevalent in Thailand is higher than Australia. Thedifference between the two returns is about 7% as the rate prevalent in Thailand is about 15%and in Australia it is about 8%. However, this also suggests the uncertainty that is presentwithin the economy of Thailand. As a result of this uncertainty the value of its currency i.e.Baht will reduce in the near foreseeable future1. This implies that the company will get lesseramount of Australian Dollars in exchange of same amount of Baht in the future.Consequently it will be prudent for the company to not invest the excess funds earned inThailand back in Thailand rather it should remit the amount back to Australia despite thelower rate of returns on investments. This will insulate the company from any depreciation inthe value of Baht in the future.Answer to question 2. In the present case, the company is faced with the requirement of additional for itsoperations back in Australia. The need of funds could be mitigated by two ways and they areeither the company can remit the excess funds earned byte company from its operations inThailand or borrow funds in form of debt at the existing interest rate of 10% in Australia2. Ifthe company is not going to remit the funds earned by it, then it will have to borrowadditional funds at the rate of 10%. Furthermore, it is highly anticipated the value of Bahtcurrency is going to depreciate in the near future and if the same depreciation amounts to 5%then the company will get returns of only 9.25% from the funds it reinvests in Thailand.1Titman, Sheridan, Arthur J. Keown, and John D. Martin.Financial management: Principles and applications.Pearson, 2017.2Deresky, Helen.International management: Managing across borders and cultures. Pearson Education India,2017.
INTERNATIONAL FINANCE3Hence, it will be highly detrimental to the financial interest of the company to reinvest thefunds it earned in Thailand and not remit it back to Australia3. Answer to question 3.Particulars AmountRevenue denominated in bahtSpeedos price per pair4,594.00THB number of pair of speedos180000Revenue in Baht826,920,000.00THB Availability of Cash Flow in bahtRevenue in Baht826,920,000.00THB Cost of goods sold516,780,000.00THB Cash flow available in baht310,140,000.00THB Convesrion of baht in dollar in one yearCash flow available in baht310,140,000.00THB Interest earned on baht for a one year period (15%)46,521,000.00THB The conversion that will be made in one year356,661,000.00THB Expected spot rate in one year0.0361Expected dollar receipt in a period of one year12,875,462.10$ Plan 1: Investment in ThilandParticulars AmountRevenue in Baht826,920,000.00THB Cost of goods sold(516,780,000.00)THB Cash Flow Available in Baht310,140,000.00THB Current spot rate0.03810$ Dollar receipt at current value11,816,334.00$ Interest on investnent for one year945,306.72$ Dollar receipt in one year period12,761,640.72$ Plan 2: Convert funds immediately3Com, M., and Sem II. "International Finance." (2016).
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