204 negotiatingwithforeignsuppliers

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  • 1. Negotiating with foreign suppliers within budget
  • 2. Problems when buying from overseas
    • Cultural
    • Political and ethical
    • Communication
    • Quality
    • Foreign exchange risk
    • Legal difficulties
  • 3. Foreign exchange risks
  • 4. Exercise
    • You are an importer in USA buying wine goblets from China.
    • In mid-January you sent an order for 10,000 goblets. Payment of US$40,000 is due in mid-June.
    • You expect the RMB to rise from its present rate of RMB1=US$0.149 to RMB1=US$0.170 by June.
    • What currency of payment would you prefer to be stated in the contract in the settlement of this purchase? Why?
  • 5. Foreign exchange risks
    • Transaction exposure
      • Risk in an adverse exchange rate
    • Minimizing foreign exchange risks (Pg 519)
      • To buy in the currency of buyer
      • Reduce risk by hedging with forward contracts
      • Buy currency options
      • Buy at spot price on the day of purchase
      • Negotiate currency adjustment clauses
  • 6. Discuss
    • Describe how IBM and Keytronics carried out negotiations with foreign suppliers to purchase within budget.
    • Briefly discuss the problems of dealing with overseas suppliers (E.g. Culture, distance, etc)
    • Focus on foreign exchange risk
    • How to minimize foreign exchange risks so that purchase is done within budget?