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

Estimate sales price of gas, A proposal to extend the ABC Gas Company Ltd's...

A proposal to extend the ABC Gas Company Ltd's gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC's exist

Explain the adjusting journal entry, Q. Explain the Adjusting Journal Entry...

Q. Explain the Adjusting Journal Entry? Adjusting Journal Entry - An accounting entry made into a subsidiary ledger known as the Generaljournal to account for a periods changes

Macaulay duration and modified duration, We can also express Modified...

We can also express Modified duration as follows:                                                                                               ...Eq. (3) The

Effect on exchange rates, Effect on Exchange Rates As we know, one of t...

Effect on Exchange Rates As we know, one of the most vital determinants of changes in relative exchange rates is the relative inflation rate. Assuming a free and open market, i

Calculation of a firms sales returns, a) The combined two-firm concentratio...

a) The combined two-firm concentration ratio of Motorola (approximately 17.5%) and Nokia (35%) is around 52.5% of the market. b) Up to 2 marks for correct definition: Market sha

How industrial company inflate the value of its inventory, How can an indus...

How can an industrial company inflate the value of its inventory so as to decrease net income and the taxes is has to pay that year? If a company increases the value of its inv

Analyse consumer behaviour, Eatmore & Green Pty. Ltd (Australia) is a succe...

Eatmore & Green Pty. Ltd (Australia) is a successful medium sized marketing consultancy for Australian agricultural products and Australian sourced organic, natural beauty/cosmetic

Define policy formulation - accounts receivable management, Q. Define Polic...

Q. Define Policy formulation - accounts receivable management This is concerned with set up the framework within which management of accounts receivable in an individual compan

Operating cyle, discuss the applicabilty of the operating cycle in a vegeta...

discuss the applicabilty of the operating cycle in a vegetable growing business

Determine financial goal of the entrepreneurial venture, 1) What is the fin...

1) What is the financial goal of the entrepreneurial venture?  What are the major components for estimating value? 2) Briefly discuss the likely importance of an entrepreneur's

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