Assume Your Company Has a Contract to Purchase 100,000 Computers

question 153

Essay

Assume your company has a contract to purchase 100,000 computers from a Korean company. The payment is due on receipt of the shipment and must be delivered in Korea on December 31, 2015. In July 2015, when you are arranging the contract, the computers are priced at 500,000 won each. The spot rate in July 2015 is $1 in exchange for 1,250 won.
I. Calculate the U.S. dollar price (in July 2015) of one unit of Korean currency.
II. What is the total price of the computers in dollars?
III. What is the total price of the computers in won?
IV. What would you advise your firm to do to avoid a loss on the deal if the Korean won costs 10% more compared with the U.S. dollar when payment is due in December?

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Definitions:

Audience Inhibition

Failure to help in front of others for fear of feeling like a fool if one’s offer of help is rejected

Egoistic Motives

Actions driven by self-interest, focusing on benefits or outcomes that primarily serve the individual's own needs or desires.

Diffusion of Responsibility

A phenomenon in which individuals in a group are less likely to take responsibility for action or inaction when others are present.

Belief in a Just World

The psychological concept suggesting that individuals have a deep-seated need to believe that the world is fundamentally fair, leading to rationalizations of suffering and injustice.