Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Ahnuld Corporation, a health juice producer, recently expanded its sales through exports to foreign markets. Earlier this year, the company negotiated the sale of several thousand cases of turnip juice to a retailer in the country of Tcheckia. The customer is unwilling to assume the risk of having to pay in U.S. dollars. Desperate to enter the Tcheckian market, the vice president for international sales agrees to denominate the sale in tchecks, the national currency of Tcheckia. The current exchange rate for 1 tcheck is $2.00. In addition, the customer indicates that it cannot pay until it sells all of the juice. Payment of 100,000 tchecks is scheduled for six months from the date of sale.Fearful that the tcheck might depreciate in value over the next six months, the head of the risk management department at Ahnuld Corporation enters into a forward contract to sell tchecks in six months at a forward rate of $1.80. The forward contract is designated as a fair value hedge of the tcheck…
Ahnuld Corporation, a health juice producer, recently expanded its sales through exports to foreign markets. Earlier this year, the company negotiated the sale of several thousand cases of turnip juice to a retailer in the country of Tcheckia. The customer is unwilling to assume the risk of having to pay in U.S. dollars. Desperate to enter the Tcheckian market, the vice president for international sales agrees to denominate the sale in tchecks, the national currency of Tcheckia. The current exchange rate for 1 tcheck is $2.00. In addition, the customer indicates that it cannot pay until it sells all of the juice. Payment of 100,000 tchecks is scheduled for six months from the date of sale.Fearful that the tcheck might depreciate in value over the next six months, the head of the risk management department at Ahnuld Corporation enters into a forward contract to sell tchecks in six months at a forward rate of $1.80. The forward contract is designated as a fair value hedge of the tcheck…
Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory. This firm is most likely trying to greatly reduce, or eliminate, which one of the following?
Interest rate disparities
Short-run exposure to exchange rate risk
Long-run exposure to exchange rate risk
Political risk associated with the foreign operations
Translation exposure to exchange rate risk
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