Ifm... Blades Case ch4

Case 04
Blades, Inc.
1. How are percentage changes in a currency’s value measured? Illustrate your answer
numerically by assuming a change in the Thai baht’s value from a value of $0.022 to
$0.026?
Introduction-
An exchange rate measures the value of one currency in units of another currency.
When a currency declines in value, it is said to depreciate. When it increases in value, it
is said to appreciate.
Problem statement-
The impact that inflation has on the time value of money is it decreases the value of a dollar
over time. The time value of money is a concept that describes how the money available to you
today is worth more than the same amount of money at a future date.
Solution-
To calculate the percentage-change in a currency’s value this equation is used:

=S−S(t−1)S(t−1)
S is the spot rate and S(t-1) is de spot rate but from an earlier date.
So if we apply it in this question it would be: $0.026−$0.022$0.022=18.18
Because it is a positive percentage change the Baht would appreciate by 18.18%
Conclusion-
To calculate the percentage discrepancy, take the difference between the two exchange rates,
and divide it by the market exchange rate.
2. What are the basic factors that determine the value of a currency? In equilibrium, what
is the relationship between these factors?
Introduction-
The value of money is determined by the demand for it, just like the value of goods and
services. There are three ways to measure the value of the dollar. The first is how much the
dollar will buy in foreign currencies.They take into account supply and demand, and then factor
in their expectations for the future.
Problem statement-
A country's terms of trade improves if its exports prices rise at a greater rate than its imports
prices. This results in higher revenue, which causes a higher demand for the country's currency
and an increase in its currency's value. This results in an appreciation of exchange rate.
Solution-
The supply of the currency for sale and the demand for the currency are the basic
factors that define how much the currency is worth. Because in that way people are able
to see what goes in and out of a country. In equilibrium the supply and demand are at
an equal point. But if the supply is high than usually the currency’s value decrease and
if the demand is high usually the value of the currency increases.
Conclusion-
A utility derived from every purchase or every sum of money spent. Value for money is based
not only on the minimum purchase price (economy) but also on the maximum efficiency and
effectiveness of the purchase.
3.How might the relatively high levels of inflation and interest rates in Thailand affect the
baht’s value. (Assume a constant level of U.S. inflation and interest rates.
Introduction-
In general, as interest rates are lowered, more people are able to borrow more money. The
result is that consumers have more money to spend, causing the economy to grow and inflation
to increase. The opposite holds true for rising interest rates.
With less spending, the economy slows and inflation decreases.
Problem statement-
Real interest rates play an important role in the economy because real interest rates affect the
demand for goods and services through borrowing costs. Remember, if the inflation rate is zero,
then nominal interest rates should equal real interest rates.
Solution-
Both inflation and interest would be affected. If there is a high level of inflation, it usually
results in a currency depreciation, and that would result in an increase in buying goods
in the U.S, that would cause an increase in the Thai demand for dollars. Because Thai
people need dollars to buy US. goods. Also, a high level of inflation would reduce the
U.S. demand for Thai goods, people are less tempted to buy goods in Thailand and that
would cause an increase in the supply of baht for a lower price.
On the other hand, a high level of interest rates can cause appreciation of the bath
instead of depreciation. A high level of interest rates in Thailand would make it more
attractive for U.S investors to invest in Thailand, that would cause an increase in the
demand for the baht because they need the baht for their investments. And it would be
less attractive for the Thai investors to invest in the U.S., which would cause an
increase in the supply in dollar for a lower price.
Conclusion-
There is no federal law that requires a bank to cash a check, even a government check. Some
banks only cash checks if depositors have an account at the bank. Other banks will cash checks
for non-customers, but they may charge a fee. Depositors should shop around for the bank that
best meets depositors needs.
4.How do you think the loss of confidence in the Thai baht, evidenced by the withdrawal of
funds from Thailand, will affect the baht’s value? Would Blades be affected by the change
in value, given the primary Thai customer’s commitment?
Introduction-
Generally, checking account is safe from withdrawals by bank without permission. However,
there is one significant exception. Under certain situations the bank can withdraw money from
depositors checking account to pay a delinquent loan with the bank. The bank can take this
action without notifying depositors.
Problem statement-
In some cases, banks do not put any hold on deposits—depositors can spend the money
immediately. However, it's common for holds to last for several business days, and the type of
deposit is import Federal law limits how long banks can hold deposits.
Solution-
Normally, depreciation results when the investors withdraw their investment from the
country they invested in. That would cause an increase in the sale of the currency.
Because they need to keep the prices low in order that people still buy the currency.
There would be a high chance Blades would be affected as well by this change because
the sales are in baht. The depreciation in the baht would cause an exchange of the baht
income into fewer U.S. dollars.
Conclusion-
withdrawals by owner definition also referred to as draws. These are a reduction of owner's
equity, but are not a business expense and they do not appear on the sole proprietorship's
income statement.
6. Constract a spreadsheet illustrating the steps Blades treasurer would need to follow in order
to speculate on expected movements in the baht’s value over the next 30 days. Also show the
speculative profit. Use both of Ben Holt’s examples to illustrates possible speculation. Assume
that blades can borrow either $10 million of the baht’s equivalent of this amount. Furthermore,
assume that the following short-term interest rate (annualized) are evaluated to Blades.
Introduction-
Problem statement-
Solution-
Conclusion-

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Case 04

To calculate the percentage-change in a currency’s value this equation is used:

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