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Dear Ken,
I saw it’s mentioned to risk but I don’t see probabilities can be estimated. How can we know the probabilities can be estimated in this question?
Thanks,
KTDear John,
In Q25 above, high inflation (currency is weak), exporter charges higher prices, so the goods will be less competitive and the result should be export will be worse off.
In question 246: If a country’s currency strengthens, what effect will it have on its exporters and importers? The answer is exporters is worse off.
The result for both question: exporter is worse off however in Q25, currency is weak, in Q246, currency is strengthen.
I am confused. please help to clarify.
Thanks,
KTThanks John for very fast response. And in the answer for this question, there are 2 terms, joint cost centre and OH. What does joint cost centre mean in this case and why is environment driven costs allocated to general OH but not joint cost centre?
Thanks,
KTThanks Sir. This is the cash balance after we pay to supplier. When we convert this $1,563 to £ , I understand we sell this $ to the bank and in the real life, the bank will use 1.462. I hope my thinking makes more sense in real life and of course in the exam. Please advise if any error in my above idea.
ThanksDear Nnithal123,
Thank for your explaination. I need to make clear the first question. In the solution, the net cost is the cost of borrowing and gain/loss on futures market. I don’t see the impact of under/over hedge so why do we ignore under/over hedge in this calculation?
Thanks,
Dear Sir,
One more question, also in part b when using collar, the solution show “buy June put at 96.00 for 0.163 and sell June call at 96.50 for 0.090. Why do they select this call/put this way? any rule to select call/put for collar? if i select buy June put at 96.00 and sell June call at 96.00, any issue?
THanks,