Example on bills of exchange, Financial Management

Assignment Help:

Q. Example on Bills of exchange?

ARG Co will be apprehensive to protect the sterling value of its expected dollar receipt. The quoted forward rates demonstrate that the dollar is weakening against sterling so that the sterling value of $500000 dollars will have fallen in three months. ARG Co is able to enter into a contract now with a bank to exchange its expected dollar receipt in three months time at the current forward rate. Such a agreement is called a forward exchange contract and is binding on both the bank and ARG Co. By acquiescent to an exchange at the current forward rate the company will be protected against any further deterioration in the sterling-dollar exchange rate. The sterling value occur from the contract will be $500000/1·8174 = £275118.

A bill of exchange is signifies of payment initiated by an exporter. It is signed (accepted) by an importer representative agreement to pay the amount on the face of the bill. This payment may perhaps either be on demand (sight bill) or on a mutually agreed future date (term bill).

The risk connected with overseas receivables is reduced by bills of exchange since these bills are a liquid short-term financial asset. They are able to be discounted sold at less than face value to a bank in order to provide advance payment of the amount due to be received from overseas receivables. A smaller discount will be charged if the bill of exchange is confirmed (countersigned) by the importer's bank.

Bills of exchange can be as well used in conjunction with documentary letters of credit also known as documentary credits to reduce export credit risk even further.


Related Discussions:- Example on bills of exchange

Managerial finance functions, Managerial Finance Functions Need skilful...

Managerial Finance Functions Need skilful planning, control and execution of the financial activities. There are four significant managerial finance functions. These are as sho

Decision-tree approaches, 1024x768 Normal 0 fals...

1024x768 Normal 0 false false false EN-IN X-NONE X-NONE

Market mechanism, Market mechanism: Market mechanism is a term from ec...

Market mechanism: Market mechanism is a term from economics denoting to the use of money exchanged by sellers and buyers with an open and understood system of time and value t

Risk and return of portfolio, Portfolios are simply combinations of differe...

Portfolios are simply combinations of different securities. The characteristics of investments do differ when we possess them in combinations or portfolios. As we shall see, an ass

Different cost of capital with changed proportions, Different Cost of Capit...

Different Cost of Capital with Changed Proportions: It is quite possible that the specific costs of capital of different sources may be affected by the amount of funds' raised and

Role of government in the financial markets, Role of Government in the Fina...

Role of Government in the Financial Markets Many countries felt that the government should regulate certain aspects of the financial markets. Based on the history and culture o

What does weighted average cost of capital, What does the "weight" refer to...

What does the "weight" refer to in the weighted average cost of capital? The weight pass on to in weighted average cost of capital refers to the portion of the total capital in

Explain implications of purchasing power parity, Explain the implications o...

Explain the implications of purchasing power parity for operating exposure. Answer: Determine if the exchange rate changes are matched by the inflation rate differential among

Preliminary screening, I am facing some problems in my assignment on the to...

I am facing some problems in my assignment on the topic Preliminary Screening. Can anybody suggest me the proper explanation for it?

Display profit diagrams for long stock and for short stock, Question: (...

Question: (a) A stock currently sells for $80 and a put option with an exercise price of $80 currently sells for $2. Find the percentage gain to an investor in the common stock

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd