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Under economic exposure, Blades present value of its future cash flows is influenced by changes in exchange rates. Under transaction exposure, Blades value of future cash transactions is also influenced by changes in exchange rates. Under translation exposure, there was no exposure of an MNCs consolidate financial statements with changes in exchange rates. 2. Consolidated Net Cash Flow Assessment Currency Total Total Inflow Outflow British Pound Inflow (200,000 x 80) Japanese Yen Outflow (1,700 x 7,440) Thai Baht Inflow (180,000 x 4,594) Thai Baht Outflow (72,000 x 2,871) 16,000,000
12,648,000
12,648,000 Outflow
$.0083
$104,978.4 Outflow
$14,884,992 Inflow
Estimation of the range of net inflows and outflows Net Inflow or Range of
3. If Blades does not enter into the agreement with the British firm but continues to export to Thailand and import from Thailand and Japan, the increased correlations between the Japanese yen and the Thai baht will reduce Blades level of transaction exposure. This is due to that fact that Blades generates its net inflows in Thai baht and it generates its net outflows in Japanese yen. 4. We do not think that Blades should import components from Japan to reduce its net transaction exposure in the long run. The correlation between Thailands and Japans currency in relatively unstable. Since Blades decreases its net transaction exposure from importing from Japan (because of high correlation), we believe that Blades net transaction exposure will soon increase. 5. If Blades enters into the agreement with Jogs Ltd., its overall transaction exposure would increase because 6. Blades U.S. sales were likely negatively affected by the depreciation of the baht. U.S customers have been buying foreign roller blades because they are cheaper with a strengthened dollar. This resulted in Thailand manufacturers targeting the U.S roller blade industry. We believe that Blades exports to Thailand would be affected negatively by the depreciation. We also believe that Blades imports from Thailand would be affected positively by a depreciation of the baht. As previously discussed, the correlation between Thailands currency and Japans currency has been high; we feel the yen would also depreciate. In the end this would result to a reduced dollar costs for Blades to pay for Japanese imports.