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    Case Study On Foreign Exchange (FX)

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    Haannaa
    Ostan Ltd is an Irish software company that sells to markets in Ireland, France, and Germany. They have recently secured a large contract in the UK that will pay them quarterly licensing fees of £200k. They also have occasional expenses in the UK. Additionally, they plan to expand to the US market by opening an office and hiring sales representatives, which will cost $25k per month. The company's financial controller needs to implement a risk management policy to address the company's foreign exchange exposures from operating in multiple currencies.

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    Case Study On Foreign Exchange (FX)

    Uploaded by

    Haannaa
    352 views2 pages
    Ostan Ltd is an Irish software company that sells to markets in Ireland, France, and Germany. They have recently secured a large contract in the UK that will pay them quarterly licensing fees of £200k. They also have occasional expenses in the UK. Additionally, they plan to expand to the US market by opening an office and hiring sales representatives, which will cost $25k per month. The company's financial controller needs to implement a risk management policy to address the company's foreign exchange exposures from operating in multiple currencies.

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    Case study

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    oct-2014-case-studies-on-fx-and-trade-finance

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    Ostan Ltd is an Irish software company that sells to markets in Ireland, France, and Germany. They have recently secured a large contract in the UK that will pay them quarterly licensing fees of £200k. They also have occasional expenses in the UK. Additionally, they plan to expand to the US market by opening an office and hiring sales representatives, which will cost $25k per month. The company's financial controller needs to implement a risk management policy to address the company's foreign exchange exposures from operating in multiple currencies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    352 views2 pages

    Case Study On Foreign Exchange (FX)

    Uploaded by

    Haannaa
    Ostan Ltd is an Irish software company that sells to markets in Ireland, France, and Germany. They have recently secured a large contract in the UK that will pay them quarterly licensing fees of £200k. They also have occasional expenses in the UK. Additionally, they plan to expand to the US market by opening an office and hiring sales representatives, which will cost $25k per month. The company's financial controller needs to implement a risk management policy to address the company's foreign exchange exposures from operating in multiple currencies.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Case study on Foreign Exchange (FX)

    Ostan Ltd is an Irish company that supplies booking software to


    the hotel industry, selling to the Irish, French and German
    markets. Turnover was EUR 3.5m in 2013, and the company
    currently has bank facilities of EUR 350K (with the overdraft
    drawn to EUR 330k). The company operates a EUR account in
    their local branch.
    They have recently secured a 3 year contract to supply their
    software to a large UK hotel chain. The contract is priced in GBP
    and the hotel chain is due to pay them a quarterly licensing fee
    of GBP 200k. The first of these payments will be made in January
    2015. The company also has ad-hoc expenses in the UK from
    time to time, which they currently pay in EUR.
    Separately, the company has carried out a feasibility study about
    the merits of entering the US market, and has spotted an
    opportunity. To exploit this fully, their local EI Development
    Advisor has advised that they will need to establish a presence in
    the US. The company plan to rent office space, and to employ 4
    full time sales representatives in the US. The projected monthly
    cost of this is USD 25k and they plan to pay this from existing
    EUR income. They estimate that it will take 6 months before they
    earn revenues in the US.

    The Financial Controller has no previous experience with FX, but


    has been asked by his CEO to put a Risk Management policy in
    place.
    1. What FX exposures does the company face?
    2. What suggestions would you make to the Financial
    Controller to address these exposures? Why?
    Case study on Trade Finance
    Company ABC ltd is a €15m turnover company supplying IT
    equipment and services to domestic businesses in Ireland. The
    company has gradually grown through excellent service
    competitive pricing and generally promoted itself in industry
    magazines and trade shows. Typical sale values have been in
    the region of €50k to €100k and gross sales margin has been in
    the region of 10-15%.

    An unsolicited approach has been made by a Russian buyer that


    attended a Trade show requesting detailed specifications of the
    services and potential costs. Interestingly the buyer is looking to
    install and pay for a number of systems in a number of its stores
    in Russia and is looking at a potential order of €600k which
    would represent the largest single order supplied by ABC Ltd. It
    would also enable entrance into a significant emerging market.

    Initial contact with the company has confirmed they are a


    substantial operation in Russia. However, one unexpected twist
    is that they wish to make 90% of the contract payment at 6
    months after the final installation date. ABC Ltd have assessed it
    would take 3 months to install the equipment from receipt of
    order. This would mean that 90% of the €600k payment due
    would be received 9 months from receipt of order date. The
    remaining 10% will be paid in advance by the Russian buyer at
    the time of order.

    ABC Ltd has not previously exported and has no previous


    experience of working overseas, however, given the size of the
    potential order (and the possibility of achieving increased margin
    in a less competitive overseas market) would like to quote for
    the business.

    The Finance Director and Sales Director are scheduled to meet


    and discuss the implications of taking the order.

    Discuss the risk implications for ABC Ltd and consider the safe
    guards you might wish to put in place to mitigate payment risk
    and ensure this is a safe and profitable transaction for the
    company. Would you consider providing credit terms for a new
    overseas customer? How might you accelerate cash flow?

    Consider when you should approach BOI Trade Finance

    Would you take the Order?

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