Intelledex, Inc., a robotics manufacturer based in Corvallis, Oregon, has won a bid to deliver robotics equipment to a Swiss automobile company. The bid is SF8 million. Intelledex will receive the entire SF8 million upon delivery of the equipment six months from now. The present spot rate for the Swiss franc is SF8.000/$, and the six-month forward rate is SF8.2000/$. Intelledex can borrow U.S. dollars at 12% per annum or Swiss francs at 17% per annum. Its opportunity cost of capital is 14% per annum. 1. Explain the various ways in which Intelledex could cover its foreign exchange exposure. 2. What would the bread-even opportunity cost of capital have to be for them to be indifferent between the various alternatives
Intelledex, Inc., a robotics manufacturer based in Corvallis, Oregon, has won a bid to deliver robotics equipment to a Swiss automobile company. The bid is SF8 million. Intelledex will receive the entire SF8 million upon delivery of the equipment six months from now. The present spot rate for the Swiss franc is SF8.000/$, and the six-month forward rate is SF8.2000/$. Intelledex can borrow U.S. dollars at 12% per annum or Swiss francs at 17% per annum. Its
1. Explain the various ways in which Intelledex could cover its foreign exchange
exposure.
2. What would the bread-even opportunity cost of capital have to be for them to be
indifferent between the various alternatives?
3. Explain how economic exposure might change the expected profitability of this order.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
