1. I think that Blades is subject to transaction economic exposure. Transaction exposure is the
degree to which the value of future cash transactions can be affected by exchange rate
fluctuations. Economic exposure is the degree to which a firm’s present value of future cash
flows can be influenced by exchange rate fluctuations.
2. Consolidated Net Cash Flow Assessment
Currency
British Pound
Inflow:
(200,000 pairs x
80 pounds per
pair)
Japanese Yen
Outflow:
(1,700 x 7,440
yen per pair)
Thai baht
Inflow:
(180,000 pairs x
4,594 baht per
pair)
Outflow:
(72,000 pairs x
2,871 baht per
pair)
British pound
Net Inflow or
Outflow
Expected
Exchange
Rate
Net Inflow or
Outflow as
Measured in
U.S. Dollars
Total Inflow
Total Outflow
16,000,000
----
16,000,000
(inflow)
$1.50
$24,000,000
(inflow)
----
12,648,000
12,648,000
(outflow)
$0.0083
$104,978.40
(outflow)
826,920,000
206,712,000
620,208,000
(inflow)
$0.024
$14,884,992
Net Inflow or Outflow
16,000,000
(inflow)
Range of Possible
Exchange Rates at End
of Period
$1.47 to $1.53
Japanese yen
12,648,000
(outflow)
$0.0079 to $0.0087
Thai baht
620,208,000
(inflow)
$0.020 to $0.028
Range of Possible Net
Inflows or Outflows in
U.S. Dollars (Based on
Range of Possible Net
Exchange Rate)
$23,520,000 to
$24,480,000
(inflow)
$99,919.20 to
$110,037.60
(outflow)
$12,404,160 to
$17,365,824
(inflow)
3. I think that if Blades does not enter into the agreement with the British firm but continues doing what
it is already doing, in terms of importing and exporting, will reduce Blades level of transaction exposure
due to the increased correlations between the Japanese yen and Thai baht. Because Blades generates
inflows denominated in Thai baht but their net outflows denominated in Japanese yen.Ch