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    Chapter 10 Blades Case

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    Janka Sipos
    This case study examines the foreign exchange risks faced by Blades, a US company that exports roller blades to Thailand and imports components from Thailand and Japan. [1] Blades faces economic and transaction exchange rate risks but no translation risk. [2] An analysis of Blades' cash flows in different currencies shows it would have a net cash inflow. [3] Strengthening the relationship between the Japanese yen and Thai baht would decrease Blades' transaction risk. [4] However, importing more from Japan is not recommended long-term due to volatility between the Japanese yen and Thai baht currencies.

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    Chapter 10 Blades Case

    Uploaded by

    Janka Sipos
    35 views2 pages
    This case study examines the foreign exchange risks faced by Blades, a US company that exports roller blades to Thailand and imports components from Thailand and Japan. [1] Blades faces economic and transaction exchange rate risks but no translation risk. [2] An analysis of Blades' cash flows in different currencies shows it would have a net cash inflow. [3] Strengthening the relationship between the Japanese yen and Thai baht would decrease Blades' transaction risk. [4] However, importing more from Japan is not recommended long-term due to volatility between the Japanese yen and Thai baht currencies.

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    Chapter 10 Blades Case solution

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    This case study examines the foreign exchange risks faced by Blades, a US company that exports roller blades to Thailand and imports components from Thailand and Japan. [1] Blades faces economic and transaction exchange rate risks but no translation risk. [2] An analysis of Blades' cash flows in different currencies shows it would have a net cash inflow. [3] Strengthening the relationship between the Japanese yen and Thai baht would decrease Blades' transaction risk. [4] However, importing more from Japan is not recommended long-term due to volatility between the Japanese yen and Thai baht currencies.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views2 pages

    Chapter 10 Blades Case

    Uploaded by

    Janka Sipos
    This case study examines the foreign exchange risks faced by Blades, a US company that exports roller blades to Thailand and imports components from Thailand and Japan. [1] Blades faces economic and transaction exchange rate risks but no translation risk. [2] An analysis of Blades' cash flows in different currencies shows it would have a net cash inflow. [3] Strengthening the relationship between the Japanese yen and Thai baht would decrease Blades' transaction risk. [4] However, importing more from Japan is not recommended long-term due to volatility between the Japanese yen and Thai baht currencies.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Corporate Finance in a Global Economy: Challenges and Opportunities

    Hadházyné Dr. Burucs Judit


    2022/2023/2
    Janka SIPOS

    Blades Case study 10 Solutions


    1. Blades is exposed to economic and transaction risks related to changes in exchange rates,
    but it is not exposed to translation risk. Economic exposure affects Blades' future cash flows,
    while transaction exposure affects the value of its future cash transactions. However, Blades'
    consolidated financial statements are not affected by changes in exchange rates, meaning
    there is no translation exposure for the company.

    2.
    Consolidated Net Cash Flow Assessment
    Currency Total Total Net Flow Expected Net Flow
    Inflow Outflow Exchange (USD)
    Rate
    British 16,000,000 16,000,000 $1.5 $24,000,000
    Pound Inflow Inflow
    Inflow
    (200,000 x
    80)
    Japanese 12,648,000 12,648,000 $.0083 $104,978.4
    Yen Outflow Outflow
    Outflow
    (1,700 x
    7,440)
    Thai Baht 826,920,000 206,712,000 620,208,000 $.024 $14,884,992
    Inflow Inflow Inflow
    (180,000 x
    4,594)
    Thai Baht
    Outflow
    (72,000 x
    2,871)

    Estimation of the range of net inflows and outflows


    Net Inflow or Range of Range of Net Inflows or
    Outflow Exchange Rate Outflows (USD)
    British Pound 16,000,000 $1.47$1.53 $23,520,000$24,480,000
    Inflow Inflow
    Japanese Yen 12,648,000 $.0079$.0087 $99,919.2$110,037.6
    Outflow Outflow
    Thai Baht 620,208,000 $.02$.028 $12,404,160$17,365,824
    Inflow Inflow
    Corporate Finance in a Global Economy: Challenges and Opportunities
    Hadházyné Dr. Burucs Judit
    2022/2023/2
    Janka SIPOS

    3. If Blades chooses not to make a deal with the British firm and instead continues exporting to
    Thailand and importing from Thailand and Japan, the strengthened relationship between the
    Japanese yen and Thai baht will decrease Blades' level of transaction risk. This is because Blades
    gains more Thai baht than it loses and spends more Japanese yen than it earns.

    4. In the long term, I don't recommend that Blades import components from Japan to minimize
    its net transaction risk. The relationship between the currencies of Thailand and Japan is
    relatively volatile, and while importing from Japan initially decreases Blades' net transaction
    risk due to high correlation, I expect that Blades' net transaction risk will eventually increase.

    5.-6. If Blades decides to enter into an agreement with Jogs Ltd., its overall transaction
    risk would increase because the depreciation of the Thai baht likely had a negative
    impact on Blades' sales in the United States. U.S. customers have been purchasing
    cheaper foreign roller blades due to the strong dollar, leading Thai manufacturers to
    target the U.S. roller blade industry. I anticipate that Blades' exports to Thailand would
    be adversely affected by the depreciation, while its imports from Thailand would
    benefit. Additionally, the correlation between the currencies of Thailand and Japan has
    been strong, leading us to believe that the yen would also depreciate. Ultimately, this
    would result in reduced costs for Blades to pay for Japanese imports in dollars.

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