Problem: Prepare a case study analysis of Blades, Inc. Case: Assessment of Exchange Rate Exposure, located at the end of Chapter Ten in the International Financial Management text by Jeff Madura.
1. What type(s) of exposure (i.e., transaction, economic, or translation exposure) is Blades subject to? Why?
2. Using a spreadsheet, conduct a consolidated net cash flow assessment of Blades, Inc., and estimate the range of net inflows and outflows for Blades for the coming year. Assume that Blades enters into the agreement with Jogs, Ltd.
3. If Blades does not enter into the agreement with the British firm and continues to export to Thailand and import from Thailand and Japan, do you think the increased correlations between the Japanese yen and the Thai baht will increase or reduce Blades' transaction exposure?
4. Do you think Blades should import components from Japan to reduce its net transaction exposure in the long run? Why or why not?
5. Assuming Blades enters into the agreement with Jogs, Ltd., how will its overall transaction exposure be affected?
6. Given that Thai roller blade manufacturers located in Thailand have begun targeting the U.S. roller blade market, how do you think Blades' U.S. sales were affected by the depreciation of the Thai baht? How do you think its exports to Thailand and its imports from Thailand and Japan were affected by the depreciation?