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subject international finance Excenturia Boutique has established its Muslimah boutique for three years and the headquarter (HQ) is located in Kuala Lumpur

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subject international finance

Excenturia Boutique has established its Muslimah boutique for three years and the headquarter (HQ) is located in Kuala Lumpur. The boutique is selling hijab, abaya and other attires. It has six branches in Malaysia and it also sells their products by online. It has own brand for its products known as Jelita. The boutiques exported its products to few countries such as Brunei, Sudan, Saudi Arabia, Singapore, Myanmar, Bangladesh and Indonesia. Currently, it has two factories, one is in Bangladesh and the other one is in Myanmar. Last year sales were RM3 million and its net income was about 40% of its income. Currently, the finance department try to earn gain from the conversion of Malaysian Ringgit to other currency and vice versa. Firstly, it wants to import the raw materials from China and the person in charge has refer to two Banks namely AA Bank and BB Bank. The amount to pay is about RM100,000. The quote as follows:

AA Bank BB Bank Bid Ask Bid Ask Chinese Yuan Renminbi RM0.66 RM0.67 Chinese Yuan Renminbi RM0.67 RM0.68 At the same time, the HQ to import the raw materials from Vietnam and send it to the factory in Myanmar and the amount required is about RM500,000. The quote as follows: Quoted Bid Price Quoted Ask Price Value of Vietnam Dong in Ringgit Malaysia (MYR) RM0.00018 RM0.00019 Value of Kyat Myanma in Malaysian ringgit (MYR) RM0.00236338 RM0.00236340 Value of a Vietnam Dong in Kyat Myanma MMK0.07790 MMK0.07800 Besides the needed to exchange the currency from import and export transactions, the Investment Department also has involved with arbitrage transactions to growth its funds. The Investment Department decided to invest RM200,000 in US. The current spot rate of the US dollar is US0.24. The 90-day forward rate of the US dollar is US0.26. The 90-day interest rate in US is 3% and the 90-day interest rate in Malaysia is 5%. Besides the above transactions, the finance department is also responsible on its payables and receivables. The risk of exchange rate for the firm is high because they are imported their raw material from few countries such as China, Vietnam, South Korea, Japan and Bangladesh. Therefore, the Finance Manager try to find the best solutions to avoid its payments and receivables affected from the changes of the currency. This will affect to their sales and net income. Therefore, one of the best solutions is by hedging. However, the firm has few alternatives and has to find the best alternatives. The first alternative is the hedge in the forward market. Assume the firm required 500,000 in one year. The one-year forward rate is RM0.70. Besides, the firm also to hedge in money market with the same amount as above. Assume the deposits earn 6.5% on this deposit. The spot rate today is RM0.66 and the interest rate on borrowing is 7%. In addition, the third alternative is to buy a call option. Assume the exercise price is RM0.66 and the premium is RM0.025. The firm also make a comparison between the above transactions and without hedge. The assumptions on the possible rate of Renminbi in one year are RM0.72, RM058 and RM0.80. The firm assume to receive Brunei $700,000 in another 8 months The forward rate is RM3.13. At the same time if the firm borrow at Brunei dollar at interest rate of 6% and the spot rate is RM3.11. the interest earn in eight months is 5%. The firm also buy a put option at exercise of RRM3.15 and the premium is RM0.55. Furthermore, the firm also make assumptions on the spot rate in year if there is no hedge done are RM3.12, RM3.18, RM3.25. Required

: a. Using the above quoted price, compute the profits earn from THREE (3) different types of arbitraging.

b. When the trader will use the above arbitrage strategies and the importance of this strategies to the traders or investors? Justify. (6 marks)

c. Evaluate the techniques of forward hedge, money market hedge, call option and without hedge for the payables. Recommend to the firm the best technique for them to follow. Justify your reasons.

d. Evaluate the techniques of forward hedge, money market hedge, call option and without hedge for the receivables. Recommend to the firm the best technique for them to follow. Justify your reasons.

e. Discuss the importance of the firm to enter the forward contract, hedging and options contract. How all the above may protect the firm from the risk of exchange rate?

f. What are the motivations of the firm penetrating the market in countries (at least 10 countries except Bangladesh and Myanmar) as mentioned above? Assess your answers based on the actual situations and please get the information from google (2 factors for each country).

g. Why the firm decided to open it factories in Bangladesh and Myanmar? Evaluate the firm decision based on the country risk analysis and the factors motivated them to open the factories in these two countries.