QUESTION
#1
One
point of concern for you is that there is a trade-off between higher interest
rates in
Thailand and the delayed conversion of Baht into dollars. Explain what this
means?
Answer:
As
the interest rate is high in Thailand so it is beneficial to invest the excess
amount is Thailand. As we know that it is the motivational factor of invest in
another country where you see high interest rate, invest in that country but it
is also an inflation factor that rise the interest rate of any country. It
shows the weak economy and you want to encourage the foreign investment. The
interest rate of USA is 1.7% in 2013 that shows their economy is strong.
QUESTION
#2
If
the net Baht received from the Thailand operations are invested in Thailand,
how
willUS operations be affected? (Assume that Blades is currently paying 10% on dollar borrowed
and needs more financing for its firm)
Answer:
The
excess revenue is 620208000 [ Sales ( 180,000*4594) – CGS(72000*2871)] if again
invested in Thailand then BLADES Co. has to make more financing to continue its
operations as they already on debt. Second point is that economy of Thailand in
future may get more weak and your exchange rate risk increase. Because
according to investment rule, that currency must be strong in future.
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