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

State about the detection risk, State about the Detection risk This is ...

State about the Detection risk This is the risk that auditors 'substantive procedures don't detect a material misstatement in an account balance or class of transactions. It is

Distinguish between diversifiable and non-diversifiable risk, Question: ...

Question: (a) An efficient financial market is assumed to hold under the Capital Asset Pricing Model (CAPM). What is the main hypothesis of an efficient financial market? (

Explain about the international finance, Explain about the International Fi...

Explain about the International Finance When money crosses international boundaries businesses,individualsand governments should deal with special kinds of problems. Every c

For capital budgeting decision which cost is relevant, For capital budgetin...

For capital budgeting decision which cost is relevant For capital budgeting decision, composite cost of capital is comparatively more relevant albeit the firm may finance one p

Explain banks circumtances to impose compensating balances, What are compen...

What are compensating balances and why do banks require them from some customers?  Under what circumstances would banks be most likely to impose compensating balances? Compensa

What are the characteristics of an efficient market?, What are the characte...

What are the characteristics of an efficient market? The term market efficiency denotes to the ease, speed, and cost of trading securities. In an efficient market the securitie

Profitability index method - benefit cost ratio, Do you guys provide Profit...

Do you guys provide Profitability Index Method assignment help? I need writing a report on Profitability Index Method and it is about 2000 words. Let me know. I need to buy your so

Guaranteed income supplement, In addition to the public pension plans, Rob ...

In addition to the public pension plans, Rob and Ellen also have RRSPs.  What options will they have when they retire if they want to draw money from their RRSPs?  Identify one str

Cash dividend, what is amount of cash dividend if investor buys share of 1...

what is amount of cash dividend if investor buys share of 100 at premium of 400.

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