help on assignment course practice and procedure in international trade
Confirmation exercise for 2020 assignment re commodity and FX futures.
(a) You are a baker in Kokkola and you entered the contract on the 1st of April 2007. You are contracted to supply aSwedish supermarketchain with bread for premises bake for two years at a fixed price of SEK 6,60a kilo. You will supply 10,000 kilos a week.
You have calculated the costs per unit as follows:-
Wheat 15c
Other ingredients 5c
Labour 20c
Overhead 26c
Total Cost 66c
Why are you fired in April 2008 and what options should you have considered when you were
negotiating the contract?
Make 4 futures contracts for the supply of the flour* needed and four contracts for the purchase and
sale of currencies needed and received to ensure your costs are fixed for the duration of the contact.
Show the calculations of such and the dates the transactions made. For calculating the FX future rates
note that ECB Base rate at 1st April 2007 was 3,75% and Swedish Central Bank Base was 2% and see
slide 20 of the PP dealing with FX risk management to calculate forward rates. This calculated a one
for euro-rouble so if you want a six months rate divide interest rates by 2 and if you want an 18 month
rate increase them by a half.
Commodity rates at Wheat - Daily Price - Commodity Prices - Price Charts, Data, and News - IndexMundi
And FX at ECB euro reference exchange rate: Swedish krona (SEK) (europa.eu)
*assume futures price of wheat is the same as the world price on 1st April 2007 – though in fact of course it would be a little higher given the need to include the costs of storage.
You supply the Swedes once a month – what credit terms do you offer, what INCO terms do use and what documentation is associated with the transactions.