International Finance Management Task 8

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 that
shows the present value of future cash flows can be affected by fluctuation of
exchange rate.

2. Consolidated Net Cash Flow Assessment of Blades Inc.

Total Inflow Total Net Inflow or Expected Net Inflow or

Outflow Outflow Exchange Outflow as
Rate Measured in
US Dollars

British pound sterling £ 16,000,000 £ 16,000,000 $1.50 $24,000,000

Inflow: 200,000 pairs (net inflow) (net inflow)
@ £ 80

Japanese yen ¥12,648,000 ¥ 12,648,000 $0.0083 $ 104,978.4

Outflow: 1,700 pairs (net outflow) (net outflow)

@ ¥ 7,440

Thai baht ₿ ₿ ₿ 620,208,000 $0.024 $14,884,992

Inflow: 180,000 pairs 826,920,000 206,712,000 (net inflow) (net inflow)
@ ₿ 4,594
Outflow: 72,000 pairs
@ ₿ 2,871
 Range Estimation of Net Inflows or Outflows 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 pound sterling £ 16,000,000 $1.47 to $1.53 $23,520,000

(net inflow) to $24,480,000
(net inflow)

Japanese yen ¥ 12,648,000 $0.0079 to $0.0087 $99,919.2 to

(net outflow) $110,037.6

Thai baht ₿ 620,208,000 $0.02 to $0.028 $12,404,160 to

(net 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 dollars, and the depreciation of Japanese Yen
can reduce costs denominated in US dollars.
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 pound sterling are relatively low. For example, depreciation of British
pound sterling may be accompanied by appreciation in the Thai baht and the Japanese
yen. The depreciation of the British pound sterling would cause dollar revenue
reduction from Blades’ exports to Great Britain. However, the reduction would be
accompanied by an increase of dollar revenue from Thailand, although Blades’ dollar
costs incurred due to Japanese imports would also increase.
6. Blades’ sales in the United States were likely negatively affected by the depreciation
of the Thai baht, because many manufacturers located in Thailand have begun
targeting the roller blade market of the United States. This is caused by the 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 dollar costs to reduce
for Blades to pay for the Japanese imports.

Crystal 11180047