12. Differentiate between spot exchange rates and forward exchange rates. 37. Wh
ID: 1223259 • Letter: 1
Question
12. Differentiate between spot exchange rates and forward exchange rates.
37. What are export management companies? What are their advantages and disadvantages?
36. Which of the following is a disadvantage of barter as a countertrade arrangement?
A. It is a very complex arrangement.
B. In a barter system, if goods are exchanged simultaneously, one party ends up financing the other.
C. Firms engaged in barter run the risk of having to accept goods they do not want or cannot use.
D. It involves huge cash transactions.
E. It cannot be used in transactions with trading partners who are not creditworthy.
Explanation / Answer
Answer 12:
Spot rate and Forward rate are different prices fro different contracts. The forward rate is the settlement price for forward contract while spot rate is the settlement price for a spot contract.
A spot contract is a contract of buying or selling a commodity , security or currency for settlement on the spot date, which is generally two business days after the trade date. The settlement price is called spot price or spot rate. In forward contract, contracts are agreed now and delivery occurs at a future date. The settlement price is called forward price or forward rate. Spot rates can be used to calculate forward rates.
Answer 37:
Indirect exporting refers to selling of goods by a firm to an intermediary who in turn sells the product either directly to customers or importing wholesale. Export Management Companies are one such intermediary. The most important advantage of an EMC is that they act as a global extension to the firm's product sales and have experienced specialists. One drawback of EMC is that it reduces the profits from exports as the firm will have to pay commission to EMCs for selling their product. Also, firm will fail to develop its own exporting capabilities.
Answer 36:
Option C. Firms will have to accept the goods in return of the good sold by them which they do not want or cannot use or might not be able to re sell.
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