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Decisions To Use International Financial Markets

353 words - 2 pages

1. One point of concern for you is that there is a trade-off between the higher interest rates in Thailand and the delayed conversion of baht into dollars. Explain what this means.

ANSWER: If the net baht-denominated cash flows are converted into dollars today, Blades will not be obligated to depreciation in the future; in the end, there would be a decrease in the dollar cash flows and a depreciation of the baht.

2. If the net baht received from the Thailand operation are ...view middle of the document...

S. operations. In order to do so, the funds will need to be at a 10 percent interest rate. Therefore, if the baht depreciates 10 percent over the next year, investments in Thai will yield 5 percent. This would then mean that the company would need to pay 10 percent interest on the funds that would be borrowed in the U.S. The baht, though, should be converted into dollars in order to be used in the United States. This will ultimately ensure that the people in Thailand will have a better-expected idea of the interest expenses.

3. Under the first plan, net baht-dominated cash flows (received today) will be invested in Thailand at 15 percent for a 1-year period, after which the bath will be converted to dollars… Does Holt’s plan seem superior in terms of dollar cash flows available after 1 year?

ANSWER: Blades, Inc. should invest all of the funds that it generated in Thailand at 8 percent – it is advised that the company should borrow the funds at an interest rate that is below 8 percent. Due to the fact that Blades, Inc. is borrowing at a 10 percent rate, it is advised for the company to make certain decisions that may better itself such as accumulate excess funds that are generated in Thailand and use the funds towards...

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