You are the CFO of the Overseas Sprocket Company, which imports a great deal of

Question

You are the CFO of the Overseas Sprocket Company, which imports a great deal of product from Europe and the Far East and is continually faced with exchange rate exposure on unfilled contracts. Harry Byrite, the head of purchasing, has a plan to avoid exchange rate loss. He suggests that the firm borrow enough money from the bank to buy a six-month supply of foreign exchange that would be kept in a safety deposit box until used. "We'd never have another unexpected exchange rate loss again," says Harry. Please prepare a polite response to Harry's idea. Explain why you do or don't like it, and suggest an alternative if you feel one is appropriate.

Explanation / Answer

i don't like his idea... he is very intelligent in doing so but he should keep in mind that 6 month time is very long and exchange rates may flactuate to great extent , it may happen that value of that foreign currency may decline

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