1. Blades Inc. is subject to transaction exposure and economic exposure.

The reason
because transaction exposure is the degree shows the value of future cash transactions
can be affected by fluctuation of exchange rate. Economic exposure is the degree show
the present value of future cash flows can be affected by flucation of exchange rate.
2. Conslidated Net Cash Flow Assessment of Blades Inc.
Total Total Net Inflow Expected Net Inflow
Inflow Outflow or Ouftlow Exchange or Outflow
Rate as
Measured
in US
Dollars
British £ £ $1.50 $24,000,000
poundsterling 16,000,000 16,000,000 (net inflow)
Inflow: (net inflow)
200,000 pairs
@ £ 80
Japanese yen ¥ ¥ $0.0083 $ 104,978.4
Outflow: 12,648,000 12,648,000 (net
1,700 pairs @ (net outflow)
¥ 7,440 outflow)
Thai baht ₿ ₿ ₿ $0.024 $14,884,992
Inflow: 826,920,000 206,712,000 620,208,000 (net inflow)
180,000 pairs (net inflow)
@ ₿ 4,594
Outflow:
72,000 pairs
@ ₿ 2,871

Range Estimation of Net Inflows or Ouftlows for Blades Inc.

 Net Inflow or Range of Possible Range of Possible
Outflow Exchange Rates at Net Inflows or
End of Period Outflows in US
Dollars
British £ 16,000,000 (net $1.47 to $1.53 $23,520,000 to
poundsterling inflow) $24,480,000 (net
inflow)
Japanese yen ¥ 12,648,000 (net $0.0079 to $0.0087 $99,919.2 to
outflow) $110,037.6
Thai baht ₿ 620,208,000 (net $0.02 to $0.028 $12,404,160 to
inflow) $17,365,824

3. If Blades Inc. does not make the agreement with the British firm, but continues its current
importing and exporting practices, the increasing of correlations between the Japanese
yen and the Thai baht will reduce the transaction exposure level of Blades Inc., because it
generates net inflows denominated in thai Baht, but generates net outflows denominated
in Japanese yen. For example, the depreciation of Thai baht can reduce revenue
denominated in US dollar, and the depreciation of Japenese Yen can reduce costs
denominated in US dollar.
4. Importing components from Japan may not be a good way to reduce long term
transaction exposure of Blades Inc. Although Thai baht is highly correlated with Japanese
yen, it has been low and unstable in the past. Once the current economic problems caused
the currently high correlation subside, the correlation between the two currencies may
return to normal level. Blades Inc. net transaction exposure may increase when the
correlation between the baht and the yen returns to normal level because it only reduces
its net transaction exposure by importing from Japan.
5. If Blades enters into the agreement with Jogs Ltd., there will be an increase in overall
transaction exposure because the transactions would increase Blades’ net cash inflows
denominated in foreign currencies. However, the increase in transaction exposure may be
not so high, because the correlations between Thai baht, Japanese yen, and the British
poundsterling are relatively low. For example, depreciation of British poundsterling may
be accompanied by appreciation in the Thai baht and the Japanese yen. The depreciation
 of the British poundsterling would cause dollar revenue reduction from Blades’ exports to
Great Britain. However, the reduction would be accompanied by increase of dollar
revenue from Thailand, although Blades’ dollar costs incurred due to Japenese imports
would also increase.
6. Blades’ sales in the United States were likely negatively affected by the depreciation the
Thai baht, because many manufacturers located in Thailand have begun targeting the
roller blade market of the United States. This is caused by ability of Blades’ customers in
the United States to obtain foreign roller blades more cheaply with a strengthened US
dollar. Blades’ exports to Thailand were affected negatively by the depreciation, because
the baht received could be converted into fewer dollars. Blades’ imports from Thailand
were probably affected positively by depreciation of the Thai baht, because fewer dollars
were needed to obtain the Thai baht to pay for the imports. The Japanese yen probably
also depreciated because there is significant correlation between the Thai baht and the
Japanese yen, causing to dollar costs reducing for Blades to pay for the Japanese imports.