oreign Exchange Market, International Exchange Issues and International Commercial Terms
You are the purchasing group for Aurora Inc., a USA international corporation that will be adding new facilities in the USA. For this expansion you will need 10 new Smart Boards for the conference rooms of the new facility. These will be required for delivery early next year and different manufactures are bidding on the project. See Week 6 Lesson Lecture: ‘PowerPoint: International Commercial Terms’.
- Without considering transportation, duty, taxes and insurance, assume the following costs:
- Cost to purchase the boards in the USA = $20,000 [EXW]
- Cost to purchase the boards in Germany = 12,000 Euro [FOB German Port]
- Cost to purchase the boards in Sweden = 105204 Swedish Krona [FAS German Port]
- Where will you purchase the boards?
- Where will the goods be delivered to you, where can we assume that title will change?
- Now, your logistics department, (a little late) informs you of the following:Transportation, insurance, duty and taxes for shipment from Germany will add to the cost of the transaction. They have furnished you with a cost sheet which has been attached below this outline.
- Transportation, insurance, duty and taxes for shipment from Sweden will add to the cost of the product and you are to use the same cost sheet to determine total payout.
Where will the supplier deliver the boards? Where will the supplier deliver the product and from where will you now purchase the boards
- Finally, late as usual, the finance department tells you to expect an inflation rate of almost 30% in Sweden next year and 5% in Germany.
How will this new information affect your decision and why?
- Brazil has now entered the bidding with the following information:Cost to purchase the Smart Boards from Brazil = 32000 Brazilian Real [CIF USA Port]
Based on all the information available, what assumptions would you make? What currency denomination would you recommend for the transaction and what terms would you prefer?
Currency can be converted by either method of multiplication or division using the March 2012 exchange rate table. Convert the currency using only this table.
Transport Insurance Duty Taxes
Cost that could be incurred inside USA borders:
Duty, clearance and Taxes = $1000
Inland transport cost to buyers Plant from Border or Port = $2000
Inland Transport cost to buyers plant from USA Suppliers = $2000
Cost that could be incurred outside USA borders:
Insurance = $1000
Ocean Freight = $4000
Inland Freight from Sellers plant to Port of loading = $1000
Loading aboard vessel and freight forwarding cost = $300
- Inflation is country specific
- The contract will be completed this year for delivery and payment next year
- The easiest way to start is to convert all currency to US dollars BUT
- The buy needs to beware of the possible loss or gain should the contract be written in the wrong currency.
Exchange rates1USD =0.8970 EUROS1USD=8.753168 SWEDESH KRONA1USD=3.274402 BRAZILIAN REAL Cost to purchase the boards in the USA = $20,000 [EXW]Cost to purchase the boards in Germany = 12,000…