Answer Happy

QUESTION (15 Marks) International Corporate Finance Floro Co is a Mongu-based company which has the following expected transactions... One month: Expected receipt of $2,400 One month: Expected payment of $1,400 Three months: Expected receipts of $3,000 As the Corporate Finance Manager for Floro CO. you collect the following information: Spot rate: Buying Selling Per USD K20.9 K21.35 One-month forward rate: Buying K21.3 Selling K21.75 Per USD Three months forward rate: Buying Selling Per USD K22 K22.3 Money market rates for Floro Co: Borrowing Deposit One-year Kwacha interest rate: 4.9% 4.6% One-year dollar interest rate: 5.4% 5.1% Required: a. In less than a page, define what is an exchange rates are, factors that affect them and discuss the differences between transaction risk, translation risk and economic risk and how they can be hedged internally and externally in an organization. (1.5 Marks) b. Explain how inflation, Interest rates can be used to forecast exchange rates. (1.5Marks) c. expected wacha receipts in one month and in three mo using the forward market. (5 Marks) d. Calculate the expected Kwacha receipts in three months using a money-market hedge and recommend whether a forward market hedge or a money market hedge should be used. (9 Marks)