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3 years ago

What is an example of an inflation risk?

Business

2 answers:

lbvjy [14]3 years ago

6 0

Answer:

A person’s income may drop

Explanation:

Inflation is the continuous and widespread increase in prices over a given period of time. When inflation occurs, people's salaries must be corrected together. For example, if inflation is 5% per year, wages must increase by at least 5%, otherwise the person's purchasing power will be reduced, which means that the person's income has decreased. This is because with the same salary, the person can buy a smaller amount of inflated goods and services. For example, if with my salary I buy 10 fruits and an inflation of 10% occurs, but my salary does not increase, I will be able to buy only 9 fruits and not 10 more.

ale4655 [162]3 years ago

5 0

The price of an item can rise or fall

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Suppose a small country has a comparative advantage in the production of consumer electronics, and it has one major electronics

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Answer:

Imports create greater competition in the domestic marketplace.

Explanation:

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andrezito [222]

Answer: secondary data

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2 years ago

Cray Research sold a super computer to the Max Planck Institute in Germany on credit and invoiced €10 million payable insix mont

Reil [10]

Answer:

a) The expected loss from the forward hedging = $432,900

b) No I wouldn’t recommend hedging the euro receivable based on the fact that the future spot rate is better off than the forward exchange rate.

c) No I wouldn’t because in any case whether you hedge or not there will be no difference.

Explanation:

Solution.

Forward Exchange Rate = $1.10/€, therefore the equivalent of €10 million receivable from Germany in 6-month time = €10 million / Forward exchange rate ($1.10) = $9,090,909

However, the 6 months spot rate is $1.05/€, therefore if we simply wait till 6 months we will receive €10 million / Forward spot rate ($1.05) = $9,523,809.

a) The expected loss from the forward hedging = $9,523,809 - $9,523,809 = $432,900

b) No I wouldn’t recommend hedging the euro receivable based on the fact that the future spot rate is better off than the forward exchange rate.

c) No I wouldn’t because in any case whether you hedge or not there will be no difference. You’ll just end up paying hedging fees which will impact on profits adversely.

However it is always advisable to hedge foreign exchange risks because predictions could differ from reality and adverse movements in exchange rates could carry significant financial consequences which may not be comparable to the hedging costs.

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3 years ago