X is considering whether to accept a 10% discount on buying imported machinery from China at USD 1800 each (normal price USD 2000) OR continue to buy them in Austalta at AUD 2300 each. Payment is to be made on arrival of the machines in 1 year's time. Relevant information: Exchange Rate (Spot) AUD/ USD: 0.8000 Forward Exchange Rate AUD/USD: 0.7700 Import Co borrowing interest rate is 6%. Available USD 1 year deposit rate is 1%. Which one of the below should X do? (a) Continue to purchase at AUD 2300. (b) Accept the discount, buy at USD 1800 and purchase the USD now at AUD/USD 0.8000. (c) Accept the discount, buy at USD 1800 and purchase the USD in one year at AUD/ USD 0.7700. (d) Buy the machines at the undiscounted price of USD 2000 and purchase the USD in one year at AUD/USD 0.8000.
X is considering whether to accept a 10% discount on buying imported machinery from China at USD 1800 each (normal price USD 2000) OR continue to buy them in Austalta at AUD 2300 each.
Payment is to be made on arrival of the machines in 1 year's time.
Relevant information:
Exchange Rate (Spot) AUD/ USD: 0.8000
Forward Exchange Rate AUD/USD: 0.7700
Import Co borrowing interest rate is 6%.
Available USD 1 year deposit rate is 1%.
Which one of the below should X do?
(a) Continue to purchase at AUD 2300.
(b) Accept the discount, buy at USD 1800 and purchase the USD now at AUD/USD 0.8000.
(c) Accept the discount, buy at USD 1800 and purchase the USD in one year at AUD/ USD 0.7700.
(d) Buy the machines at the undiscounted price of USD 2000 and purchase the USD in one year at AUD/USD 0.8000.
Step by step
Solved in 2 steps with 2 images
