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International Finance Assignment 2 Chapter 2: International Flow of Funds

This document is an assignment submitted by Zahra Abbas, a student at GCWUF, about a case study involving the company Blades Inc. and its operations and financial arrangements in Thailand. Blades manufactures roller blades and exports some of its "Speedos" brand roller blades to Thailand, while also importing cheaper rubber and plastic components from Thailand. The CFO of Blades, Ben Holt, believes the company is well positioned for future success in Thailand. However, the financial analyst has doubts and concerns about forecasts of high inflation, decreasing income, and baht depreciation in Thailand. To address these concerns, the analyst develops 5 questions about how these economic factors could impact Blades and its arrangements to present to the

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842 views3 pages

International Finance Assignment 2 Chapter 2: International Flow of Funds

This document is an assignment submitted by Zahra Abbas, a student at GCWUF, about a case study involving the company Blades Inc. and its operations and financial arrangements in Thailand. Blades manufactures roller blades and exports some of its "Speedos" brand roller blades to Thailand, while also importing cheaper rubber and plastic components from Thailand. The CFO of Blades, Ben Holt, believes the company is well positioned for future success in Thailand. However, the financial analyst has doubts and concerns about forecasts of high inflation, decreasing income, and baht depreciation in Thailand. To address these concerns, the analyst develops 5 questions about how these economic factors could impact Blades and its arrangements to present to the

Uploaded by

Z the officer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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International Finance

ASSIGNMENT 2
Chapter 2: International Flow of Funds
SUBMITTED BY:
ZAHRA ABBAS
BS- COMMERCE
ROLL NO. 3
2017-GCWUF-1478
TH
7 SEMESTER
SUBMITTED TO:
MAM TABASSUM SABA

Case: Blades, Inc.


Exposure to International Flow of Funds

Ben Holt, chief financial officer (CFO) of Blades, Inc., has decided to counteract the
decreasing demand for “Speedos” roller blades by exporting this product to Thailand.
Furthermore, due to the low cost of rubber and plastic in Southeast Asia, Holt has decided
to import some of the components needed to manufacture “Speedos” from Thailand. Holt
feels that importing rubber and plastic components from Thailand will provide Blades
with a cost advantage (the components imported from Thailand are about 20 percent
cheaper than similar components in the United States). Currently, approximately $20
million, or 10 percent, of Blades’ sales are contributed by its sales in Thailand. Only about
4 percent of Blades’ cost of goods sold is attributable to rubber and plastic imported from
Thailand.

Blades faces little competition in Thailand from other U.S. roller blades manufacturers.
Those competitors that export roller blades to Thailand invoice their exports in U.S.
dollars. Currently, Blades follows a policy of invoicing in Thai baht (Thailand’s currency).
Ben Holt felt that this strategy would give Blades a competitive advantage, since Thai
importers can plan more easily when they do not have to worry about paying differing
amounts due to currency fluctuations. Furthermore, Blades’ primary customer in
Thailand (a retail store) has committed itself to purchasing a certain amount of “Speedos”
annually if Blades will invoice in baht for a period of three years. Blades’ purchases of
components from Thai exporters are currently invoiced in Thai baht.
Ben Holt is rather content with current arrangements and believes the lack of competitors
in Thailand, the quality of Blades’ products, and its approach to pricing will ensure
Blades’ position in the Thai roller blade market in the future. Holt also feels that Thai
importers will prefer Blades over its competitors because Blades invoices in Thai baht.

You, Blades’ financial analyst, have doubts as to Blades’ “guaranteed” future success.
Although you believe Blades’ strategy for its Thai sales and imports is sound, you are
concerned about current expectations for the Thai economy. Current forecasts indicate a
high level of anticipated inflation, a decreasing level of national income, and a continued
depreciation of the Thai baht. In your opinion, all of these future developments could
affect Blades financially given the company’s current arrangements with its supplies and
with the Thai importers. Both Thai consumers and firms might adjust their spending
habits should certain developments occur.

In the past, you have had difficulty convincing Ben Holt that problems could arise in
Thailand. Consequently, you have developed a list of questions for yourself, which you
plan to present to the company’s CFO after you have answered them. Your questions are
listed here:

1. How could a higher level of national income in Thailand affect Blades?


A higher level of inflation can affect blades in Thailand because foreign goods will
become much cheaper. As a result imports of rubber and plastic components from
Thailand for Blades Inc. will suffer and it will increase their production cost.
However, a positive outlook means customers will get products from Blades at a
lower, which will increase their export to rise. Eventually their sales will increase.
Blades had a decreasing demand for “Speedos” (in chapter 1). A higher level of
inflation, it will affect the current account (a summary of the flow of funds between
one specified country and all other countries due to purchases of goods or services,
or the provision of income on financial assets) of Thailand would be expected to
decrease and exports will also decline.
2. How could competition from firms in Thailand and from U.S. firms
conducting business in Thailand affect Blades?
The main competitive advantage of Blades in this case is that they conduct their
business in Thai Baht. The other competitors who export in Thailand invoice their
exports in U.S. dollars. However, because of competitive advantage of Blades it
allows importers to continue business without less consideration about paying
different amounts due to currency fluctuations. In case of export Blades has an
advantage of providing quality products and flexible pricing strategy.
As with a view of point of local firms they will be affected by the tax rates on
interest and dividends because the local investor or firms in Thailand would
normally invest with in the country due to the interest on taxes and dividends
income are relatively low. They will access their earnings from investing in foreign
securities.
Competitors in U.S firms the investors and other firms may decide to purchase
securities from other countries, rather purchasing Thailand securities the reason is
that due to the currency of Thailand (Thai Baht) is continuously depreciating.
3. How could a decreasing level of national income in Thailand affect
Blades?
If the national income of Thailand declined, and causing the decline in demand for
imported goods which was manufactured by firms based in Thailand. Due to the
decrease in national income the current account of Thailand would also tends to
decrease.
4. How could a continued depreciation of the Thai baht affect Blades? How
would it affect Blades relative to U.S. exporters invoicing their roller
blades in U.S. dollars?
Continued depreciation of Thai baht affects the U.S exporters will increase their
demand from Thai baht as the U.S exporters are invoicing their roller blades in
dollars.
5. If Blades increases its business in Thailand and experiences serious
financial problems, are there any international agencies that the
company could approach for loans or other financial assistance?
International Financial Corporation (IFC) is the international agency that would
approach for loans or assistance in financial crisis. It’s not only provides loans to
corporations but also purchase stocks thereby becoming part owner in some cases
rather than just a creditor.

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