Construct-Tech Limited a Ghanaian supplier of industrial equipment just purchased equipments from a Korean heavy equipment manufacturer. The purchase price was KRW750 million. KRW100 million has already been paid, and the remaining KRW650 million is due in six months. The current spot rate is KRW170/GH¢, and the 6-month forward rate is KRW175/GH¢. The 6-month Korean won interest rate is 16% per annum, the 6-month Ghana cedi rate is 14% per annum. Construct-Tech can invest at these interest rates or borrow at 2% per annum above those rates. Required Compare alternate ways that Construct-Tech might deal with its foreign exchange exposure. What do you recommend and why?
Construct-Tech Limited a Ghanaian supplier of industrial equipment just purchased equipments from a Korean heavy equipment manufacturer. The purchase price was KRW750 million. KRW100 million has already been paid, and the remaining KRW650 million is due in six months. The current spot rate is KRW170/GH¢, and the 6-month forward rate is KRW175/GH¢. The 6-month Korean won interest rate is 16% per annum, the 6-month Ghana cedi rate is 14% per annum. Construct-Tech can invest at these interest rates or borrow at 2% per annum above those rates. Required Compare alternate ways that Construct-Tech might deal with its foreign exchange exposure. What do you recommend and why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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- Construct-Tech Limited a Ghanaian supplier of industrial equipment just purchased equipments from a Korean heavy equipment manufacturer. The purchase price was KRW750 million. KRW100 million has already been paid, and the remaining KRW650 million is due in six months. The current spot rate is KRW170/GH¢, and the 6-month forward rate is KRW175/GH¢. The 6-month Korean won interest rate is 16% per annum, the 6-month Ghana cedi rate is 14% per annum. Construct-Tech can invest at these interest rates or borrow at 2% per annum above those rates.
Required
Compare alternate ways that Construct-Tech might deal with its foreign exchange exposure. What do you recommend and why?
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