Blades Inc. cases study analysis paper factors of foreign exchange rates
Exchange rates are the amount of countries currency needed to purchase on unit of another currency and the foreign exchange market is the monetary link between countries that makes it possible for global trade to be more efficient.
When Blades chief financial officer preferred the flexibility that options offer over contracts because he could let the options expire if the Yen depreciates. The company would have liked to exercise a price that was 5% above the existing rate to ensure blades would have to pay no more than 5% above the existing rate for a transactions a few months beyond their order date, as long as the option premium was no more than 1.6% of the price blades had to pay per unit when implementing the option.
In reviewing, the options on the yen blades required a premium of about 1.5% of the total transaction amount that would be paid if the option is completed. A good example of this is the yen rate was $0.0072, and blades would purchase this option for a price of $0.000756, which was 5% above the existing rate. The premium for this option was $0.0001134, which is 1.5% of the price per yen that blades would have to pay if the yen option, was exercised. Some events have created more uncertainty about the yen??™s value in the future, but the events did not affect the rate of the future rate of the yen where blades interests were concerned.