INB300 - Week 8 - CheckPoint - Ch. 20 Questions

Week 8: CheckPoint - Ch. 20 Questions

There is the possibility that the foreign currency will significantly inflate (weaken) during that time resulting in a lower payment in local currency.
Yes, the exporter can use a variety of hedge fund techniques to leverage current currency trading values. An example of this is the forward hedge where a contract is made to trade currency at a set amount at a future date.
This involves getting a loan in foreign currency for the amount of the transaction and converting it to local currency. When the transaction is completed the loan is paid off.
The effort is to get the money out of the weak currencies and into the stronger currency as quickly as possible.
A long position could be taken in the one currency with a short position in the other.
Price adjustment is a device that can be used on intraenterprise transactions to anticipate fluctuations in currency exchange rates. This is not something that a single entity company could leverage.
Currency valuations are still an important aspect of doing business, and if the translation shows a lower value than at that moment the company is at a lower value.
A parallel loan is a form of swap. A loan is taken out in one currency by the originating parent company and made to foreign subsidiary of the other company. The other company does the exact same thing in the same currency. Each loan is made and repaid in one currency avoiding foreign exchange expense.
The seller can use other means to recap the money. Countertrade can be used to provide back a means of paying for the original goods.
The first is by having a third party inspect the goods to make sure that they are manufactured up to specifications as well as being shipped properly and as agreed. The other option is to have a local bank guarantee both delivery and quality. The bank then serves as a local third party and ensures that the product meets specifications.