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-Political instability – Many members of the ruling elite unsure about their fate
should their regimes be overthrown – thus transfer wealth to more stable countries.
- Lower rate of return in home country
- Higher taxation of companies and individuals
- Artificially high local currency value encourages capital flight as those involved
realize much higher values of hard currencies on exchange.
- Poor infrastructure
- Due to high levels of corruption among the ruling elite – they want to keep their wealth out of reach of their local fellow citizens would raise questions on how wealth was created
- High inflation rate
- Legal framework e.g fiscal policies
Kavungya answered the question on December 14, 2021 at 08:43
- Clean Wash Ltd. manufactures and markets automatic washing machines. Among the hundreds of components which it purchases each year from external suppliers for assembling into...(Solved)
Clean Wash Ltd. manufactures and markets automatic washing machines. Among the hundreds of components which it purchases each year from external suppliers for assembling into the finished articles are drive belts, of which it uses 400,000 units per annum. It is considering converting its purchasing, delivery and stock control of this item to a Just-In-Time (JIT) system.
This will raise the number of orders placed but lower the administrative and other costs of placing and receiving orders. If successful, this will provide the model for switching most of its inwards supplies into this system.
Details of current and proposed ordering and carrying costs are given below:
To implement new arrangements will require a one-off reorganization costs estimated at Sh.140,000 which will be treated as revenue item for tax purposes. The rate of corporation tax is 32.5% and Clean Wash Ltd. can obtain finance at an effective cost of 18%. The life span of the new system is 8 years.
Required
(a) (i)The economic order quantity with current and proposed arrangements.
(ii) New Present Value (NPV) of the new arrangement. Is the new arrangement worthwhile?
(b) Briefly explain the nature and objectives of JIT purchasing arrangements concluded between components users and suppliers.
Date posted: December 14, 2021. Answers (1)
- In a company, an agency problem may exist between management and shareholders on one hand and the debt holders (creditors and lenders) on the other...(Solved)
In a company, an agency problem may exist between management and shareholders on one hand and the debt holders (creditors and lenders) on the other because management and shareholders, who own and control the company have the incentive to enter into transactions that may transfer wealth from debt holders to shareholders. Hence the need for agreements by debt holders in lending contracts.
Required:
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Date posted: December 14, 2021. Answers (1)
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Date posted: December 14, 2021. Answers (1)
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Date posted: December 14, 2021. Answers (1)
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Lynx Services Ltd., a debt collection agency, has estimated that the standard deviation of its daily net cash flow is Sh.22,750. The company pays Sh.120 in transaction cost every time it transfers funds into and out of the money market.
The rate of interest in the money market is 9.465%. The company uses the Miller-Orr Model to set its target cash balance. The minimum cash balance has been set at Sh.87,500.
Required:
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Date posted: December 14, 2021. Answers (1)
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Date posted: December 14, 2021. Answers (1)
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Explain the benefits that are enjoyed by investors because of the existence of organized security exchanges.
Date posted: December 14, 2021. Answers (1)
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foreign exchange exposure.
Required:
(a) Explain the main types of...(Solved)
You have been retained by the management of an international group to advise on the management of its
foreign exchange exposure.
Required:
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Date posted: April 15, 2021. Answers (1)
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Date posted: April 15, 2021. Answers (1)
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Date posted: April 15, 2021. Answers (1)
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Date posted: April 15, 2021. Answers (1)
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Date posted: April 15, 2021. Answers (1)
- ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that...(Solved)
ABC Ltd a UK firm has been invited to tender for a contract in Blueland with the local currency of Blues
(B). The company thinks that the contract should cost £1 850, 000 and is prepared to price the contract
at £2 million. The current exchange rate for Blues and £ is £1: B2.80. The company therefore bids for
B5.6 million. The contract will not be awarded until after six months. A 6 month currency option to sell
B5.6 million at an exchange rate of £1: B2.8 is currently costing £40 000.
ABC Ltd can either buy the option or enter into forward Exchange contract at a rate of £1: B 2.80,
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Required:
Advice the company on which alternative is better.
Date posted: April 15, 2021. Answers (1)
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The company finance...(Solved)
XYZ Ltd, a UK firm has bought goods from a US supplier and must pay USD 4 million in 3 months time.
The company finance director wishes to hedge against the foreign exchange risk and is considering 3
methods:
- Using the forward exchange contract
- Using the money market hedge
- Using a lead payments
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Required
Advise the company on the best method to use.
Date posted: April 15, 2021. Answers (1)
- Assume that the following quotation is given:
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One month forward...(Solved)
Assume that the following quotation is given:
Spot rate £1: USD1.635 - USD 1.6385
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Required:
Compute the cost of the forward cover for a customer
Buying dollars 1 month forward.
Selling dollars one month forward.
Date posted: April 15, 2021. Answers (1)
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Spot rate ...(Solved)
Assume that the foreign currency (F) has been quoted against the £ as follows :
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3 months forward rate £1: F2207 – 2222
Required:
1. Determine the amount required in sterling pound to buy 2 million foreign currencies
• At the spot
• In 3 months time under the forward exchange contract.
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• In 3 months time under forward exchange contract
Date posted: April 15, 2021. Answers (1)
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State and explain the ways in which the exchange rate exposure can be perceived.
Date posted: April 15, 2021. Answers (1)
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Date posted: April 15, 2021. Answers (1)
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Define the term fixed exchange rate.
Date posted: April 15, 2021. Answers (1)
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Assume that the direct quote is deuchemark is DM 1 - USD 0.5 while the general interest rate in US is
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Required:
Compute the percentage change in direct quote and the new exchange rate.
Date posted: April 15, 2021. Answers (1)