1.
Danh Tran
BUSI 620
2.Why does an exporter face a foreign exchange risk? How can the exporter hedge
its foreign exchange risk?
An exporter faces a foreign exchange risk because of the difference between the
native and foreign currency. Naturally, buyers would tend to use their own
currency when purchasing products. This leads to the fact that they would not
(a) Are lower airline fares at midweek an example of third-degree price discrimination?
Lower airline fares at midweek would be third degree price discrimination only if those
travelling at mid week tend to have higher elasticity of demand. Since people travelling at
mid week would seem to be business travellers, and they would have lower elasticity of
demand, it is probably not price discrimination (e.g. it could be due to the low marginal
cost of a return flight….i.e. filling up an empty plane). However, if one could argue the
mid-week market comprises a group of consumers with lower elasticity, then it could be
price discrimination.
(b) Under what conditions would it not be useful to charge different prices in different
markets (i.e. practive third-degree price discrimination) if even possible?
If the different markets do not have different demand elasticities there is no benefit to
price discrimination
Discussion Board 6
The interest charged on payday loans is arguably acceptable. The main reason is that
choose to buy products they deem “expensive” or not “worthy” in their own
currency scale, even though those products might have been extremely worthy in
different currency scale. Furthermore, the fluctuations of currency exchange rates
also contributes to the difficulty that exporter faces.
To minimize foreign exchange risk, there are techniques an exporter can use
called forward hedging and option hedging. Forward hedging creates a pre-agreed
upon exchange rate between the exporter and the foreign buyer (Gandhi, 2006).
This decreases the risk and uncertainty for the exporter. However, sometimes
there is doubt between whether a foreign currency sale will actually be completed
and collected by a particular date. Junko et al. (2013) explains how option
hedging can help an exporter in the circumstance. Option hedging gives the
exporter,
…”the right, but not the obligation, to deliver an agreed amount of foreign
currency to the lender in exchange for dollars at a specified rate on or before the
expiration date of the option. If the value of the foreign currency goes down, the
exporter is protected from the loss. If the value goes up significantly, the exporter
can sell the option back to the lender or simply let it expire by selling the foreign
currency on the spot market for the more dollars than originally expected, but the
fee would be forfeited” (p. 6).
3.Do you think the interest on payday loans is too high or just right? Should Christians
charge poor people interest on loans?
those companies and banks who loan out also need profit and money to keep their
businesses running. Even though it is considered lending out a hand to poor people when
they need it, it still makes sense that when the poor people pay back the money, they
should pay an amount of interest, as a form of saying “thank you”. After all, the fund that
they borrow does not come from nowhere. Those loan companies need to pay for their
expenses as well and those interests on loans will come handy to generate more funds
available for more people to loan. The cycle of “helping out” is therefore incomplete if
the people who borrow money pays back with no interest.
REFERENCES
Gandhi, G. (2006, Aug). Hedging foreign exchange risk—isn’t it also a risk? The Chartered
Accountant. Retrieved from: http://www.icaiejournal.org/Journal/1303_2006_8.pdf
Junko, S., Kiyotaka, S., Satoshi, K., & Takatoshi, I. (2013, April). Exchange rate risk
Management of export firms: new finding from a questionnaire survey. The Research
Institute of the Economy, Trade, and Industry. 13(25), p. 1-29. Retrieved from:
http://www.rieti.go.jp/jp/publications/dp/13e024.pdf
