Forward rate, Spot rate factors, Click to edit and Image Master subtitle style

Group 3
Kumar Anupam- 63 Deepti Anand- 66 Nirali Shah- 68 Anik Kar- 77
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The Company at a glance

The simulated company is located in Germany, has a production plant initially in Germany, manufactures initially two consumer products and sells these in four markets:

Germany, U.S.A., China and India.

P u r c h a s e s: raw materials and bought-in goods - invoices are drawn up in Euro P r o d u c e s: goods in the Germany - all costs arising are in Euro T r a n s p o r t s: the finished goods to the central store and to the sales branches in the various sales markets S e l l s: the products Alesa and Bordo in four
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Forward rate & Spot rate Factors

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Export Factoring

It is possible to arrange for the collection of all accounts receivable from customers in all markets through the services of a factoring company. Thus return on turnover in the period of sale immediately becomes income. The fees (including interest and del credere) are given in the list of parameters. The account in the markets is paid at the forward rate of the pertinent period.

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Exchange rate fixing

Sales activities in the markets are conducted in foreign currencies. The forward and spot rates for the pertinent period will be notified . The forward rate is the rate at which 90-day forward buying can be conducted.

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Alternatives: I

At the conclusion of the sales contracts (e.g. in period n) the foreign exchange due to be received by the companies 90 days later (period n+1) can be sold at the forward rate. The proceeds from such a transaction are received by the companies at the fixed rate of period n. Currency transactions of this nature give the companies a certain protection against exchange rate risk, but the commission, brokerage etc involved cost some 0.5% of the amount receivable. In this, it is assumed that the payment will be made in accordance with the provisions of the sales contract, i.e. on the agreed date.

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Alternatives II (Contd)

If no forward buying transaction is conducted, receipts of foreign currency paid by customers in the period n+1 will be converted at the then valid spot rate. The spot rate of the period n+1 can, and as a rule will, deviate from both the spot rate of period n as well as the forward rate of period n+1. Depending on whether the spot rate of period n+1 is higher or lower, exchange rate losses or profits will accrue to the companies.

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Conditions of payment

The conditions of payment provide a basic value date of 90 days for sales in the markets. Turnover figures are indicated in the balances of the pertinent periods as accounts receivable. Such accounts receivable in a foreign currency are converted into Euros at the exchange rate valid in that period. There are two possibilities:

1. If the exchange rates are not forward fixed, the accounts receivable are entered on the assets side at the spot rate. Any exchange rate profits or losses are then indicated in the profit and loss account of the subsequent period. 2. If exchange rates are forward fixed, the accounts receivable must be entered at the forward rate. It is assumed that at the start of the simulation payments from the export markets are made to the 9/30/12 companys head office in accordance with the contract, i.e. in the

Image

The market position of the companies, and thus also buyer behavior, are influenced by, among other things, image. By "image" we mean the sum total of all factors that contribute to the public reputation of a company. Cultivating this reputation can lead to an indirect influencing of customers, and to considerable favorable side-effects on the promotions side. The companies establish standards that - from the point of view of the customers - provide the best performance.

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Measures to encourage the desired favorable attitude of the public

Punctual delivery of goods ordered Motivation and qualification of personnel involved in marketing Continuity of prices Improvement of quality

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This Image factor has the value of 100. It is calculated separately for each market in each period. The image of the companies affects:

the level of demand for their products: a good image can increase demand; poor image can result in a major reduction in the demand for the products of a company.

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Thank You

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