Foreign Exchange
On January 1, the daily spot rate is 3.13 MYR, and the forward rate is 0.317 U.S. dollars/MYR for April 1st of the same year.
On April 1, the daily spot rate is 3.52 MYR.
Prompt
Using the information above, create a short business memo that explains the profitability, viability, and importance of considering foreign exchange on the basis of the scenarios below.
Determine the profitability of the international business by using foreign exchange calculations for the first and second scenarios.
Discuss what you would need to consider when determining if the company should buy raw materials with the foreign currency in an effort to avoid foreign exchange risk and whether this is a viable option for the company.
Conclusion: After determining the result for each scenario, explain the importance to a company’s financial results of considering foreign exchange risk.