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

Normal spread, After the calculation of cash flow yield and the...

After the calculation of cash flow yield and the average life of the asset-backed and mortgage-backed security based on default, prepayment and recovery ass

State the major decision of financial management, State the major decision ...

State the major decision of financial management The major decision of financial management is the decision relating to dividend policy. The dividend must be analysed in relat

Define the replacement value of assets method, Why is the replacement value...

Why is the replacement value of assets method not usually used to value complete businesses? The replacement value of assets process is not often applied to complete business v

Methods of easing cash shortages, Q. Methods of easing cash shortages? ...

Q. Methods of easing cash shortages? There are several techniques which can potentially offset the effects of cash shortages. In the long-term nevertheless the adequacy of cash

What are the main flaws of the profit maximisation criterion, What are the ...

What are the main flaws of the profit maximisation criterion The main technical flaws of this criterion are i) ambiguity, ii) quality of benefits and iii) timing of be

Explain why warrants are rarely exercised, Explain why warrants are rarely ...

Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are seldom exercised till the time to expiration is small because the market price of the

Evaluate the under-pricing or over-pricing, Assume that you work with a lar...

Assume that you work with a large financial consulting firm. You are one of the junior financial consultants there specializing in IPO issue. A team of foreign investors has recent

Treasury bills or t-bills, Treasury bills are the bills, the governme...

Treasury bills are the bills, the government issues with maturity period of one year or less than one year. Treasury bills are usually issued as discount securiti

Dividend payout ratio, Dividend Payout Ratio The percentage of earnings...

Dividend Payout Ratio The percentage of earnings or profit paid to shareholders in dividends. Computed as:   The payout ratio gives an idea about how well earning

Decision table, drow decision table of financee managment system

drow decision table of financee managment system

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