Apianation for the hgure/graph is necessay working in a Chinese import and expor

Question

Apianation for the hgure/graph is necessay working in a Chinese import and export company. He needs to take 0o to pick up the goods in USA. C) Can he visit USA with cash amount to 00 and bring the goods back widh him from USA? (2) Suppose you're an employee of IV Case Study (18%) 1. Mr. A is a salesman who is a Chinese USD500,000 the Intermational Department of Bank of China, what advice would you give to Mr. A? 2. IBM is a multinational enterprise who has establish so many foreig n subsidiaries and branches abroad, and there are so many businesses between the IBM and its foreign subsidiaries or branches or among its foreign subsidiaries or branches. What kind of foreign exchange risks IBM will meet and how to manage these foreign exchange risks? 2

Explanation / Answer

1)1) Carrying this much amount of cash can cause different kinds of risk to Mr. A, from physical risks like theft to financial risks like fraud etc.

1)2) I, as an employee of International Department of Bank of China, would suggest Mr A, to use a different mode of money transfer like either Letter of Credit or Bank Guarantee, where (letter of credit)our bank would collaborate with the bank in US used by the company selling goods. Where my bank will transfer the respective amount to the Bank in US only after the supplier completes the formalities of shipping the goods. or in case of Bank guarantee, my bank will guarantee the payment of Mr A to the american bank of the person supplying the goods, in which case i will freeze the assets worth$500,00 in Mr. A's account and transfer them only if the entire trade goes as planned, hence hedging the risk of Mr a and the supplier of the goods.

2) the different types of risks faced by IBM, and how they can mitigate them are as follows

a) transaction risk - this is the risk arising out of change in the exchange value of the 2 involved currency. suppose the trade in in GRB pound and USD, and exchange rate is 1GRBP = 2US$. Now price of a pencil is US$2 I place the order, but at the time of settlement, the exchange rate changes to1GRBP=US$1.5 , hence I will end up paying 1.33GRBP. this can be mitigated by using hedging tools like futures, forwards and options

b) economic risk, If due to some reason, the trade transaction with a certain country gets hampered due to political, economic or social turmoil. different countries have been given ratings of ease of trade and ratings to their bonds. this shows us how much stronger is a countries economy and how little country specific risk is involved

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