Foreign Exchange Risk Introduction Case 1- Japanese Car Maker In US- Situation is that $ depreciates against Yen on the other hand assume that $had appreciated against Yen what would the impact in both the situtation
Case II <ul><li>Japan Electronic Mft in Japan and sells them to US firms –what would be the impact on yen when $ appreciates ie 30/$from 23/$ </li></ul>
Out come of the above two Example <ul><li>1. influence on the firms operating cash flow </li></ul><ul><li>2. domestic currency values of its asserts and liabilities </li></ul>
Operating Risk <ul><li>Fluctuating Exchange Rates can seriously alter the relative competitive position of such firms in domestic and foreign markets, affecting their operating cash flow. </li></ul>
Situation <ul><li>US software Company has a wholly owned Taiwan Subsidiary, Wip Computers, that Mft and sells computers at Taiwan. Wip imports the Chip from infosis, which sells them for $500 per unit. The current exchange rate of $1.50 per Taiwanese dollar. Assuming that the exchange rate will remain the same and the company expects to sell 50,000 units per year and wip faces 50% income tax in Taiwan </li></ul>
<ul><li>At a selling price of 1000 TD per unit. The unit variable cost is 600 TD which comprises of 320 PS for the imported inputs and 280 PS for the local sourced inputs. The fixed over heads of 4 million PS regardless of the output. what is the operating cash flow in PS and that in case of TD it is noted that the firm has to make an allowance of I million PS . </li></ul>
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