Finance Project Case Study Example | Topics and Well Written Essays - 750 words

Finance Project - Case Study Example The PPP on the other hand stipulates that identical products should sell at a common price when the conversion is done in the same currency. Changes in the prices in local currency due to inflation should be counteracted with an adjustment in the exchange rate to level the relative prices (Sercu, 2009). In the above case, Mr. Bozarth should use the Interest Rate Parity Theorem as follows: b) The board can decide to either invoice in home currency only, that is, undertaking only those transactions denominated in the home currency, or engaging in transactions denominated in stable foreign currencies such as the Dollar and Sterling Pound. They may also use of leads or lags. Use of advance payments or delayed payments. The company will benefit from expected exchange rate fluctuations by properly timing of its payments and receipts (Madura). The use of natural hedge by considering opening a foreign currency account to eliminate the risk of exchange movements and provide a suitable option if a client insists on billing in their currency. Forward Exchange Contract; The company can enter into an agreement with a bank to buy or sell a given amount of foreign currency at a specified date and rate. Money market Hedge can also be used where the company establishing a foreign currency obligation or asset by investing or borrowing in that foreign currency to match an existing liability or asset respectively in that currency (Madura,2011). Use of futures. the currency futures are bought or sold and losses arising due to foreign currency fluctuations on the actual transaction is matched by gain or loss in the future transaction. Under futures contracts, the parties come to an agreement to buy or sell an asset at a given fixed rate called the delivery price at a given date. The exchange rate might fluctuate either positively or adversely during this period to the date of payment but the pre-agreed rate will be used in