Baker Case and Wb
Baker case
Revenue in BRL 104,338.30
Exchange rate (feb ’06) 0.4636 BRL/$
=45574.96944
R. Exchange rate (jun ’06) 0.4368 BRL/$
= 45574.97
There is a loss of 2796.27 usd
They could increase the price in order to try and cover the risk, or asking them to pay in USD. Another option could be hedging (money market or fwd)
New quantity requested 1815 units
*86.23
=156502 BRL
0.4234 expected in Sept ’06
=66262.94
/(1+2.145)
=64871.32 PV
BRL 3 month forward (sell)
156502 BRL
*0.4227 BRL/$
= 66153.3954
/1.021452
=62115.86 PV
Money market borrow 146950.234 BRL
6.5% / 3 month
= 146950.234 BRL
*0.4368 BRL/$
= 64187.86
The one that gives the company the most profit would be the money market, so it’s the one they should choose
There could be losses in the process of changing rates in the market; the money market is risk free because the spot rate does not change but in the forward there is.
1. Which institutions are part of the world bank?
The African Development Bank
• The Asian Development Bank
• The European Bank for Reconstruction and Development
• The Inter-American Development Bank Group
The European Commission (EC) and The European Investment Bank (EIB)
• International Fund for Agricultural Development (IFAD)
• The Islamic Development Bank (IDB)