cge part 2 presentation
Post on 02-Feb-2016
217 Views
Preview:
DESCRIPTION
TRANSCRIPT
Exchange rate effect on Costco
US Dollar (USD) versus Korean Won (KRW)
Agenda
- Identify selected currencies
- Historical data and trends
- Relative forecast
- Impact of forecast
- Recommendation
Currency
Historical data and trends
2 years 5 years
Historical data and trends
From 1981 - 2015:
- Average at 994.17 KRW per USD
- Highest at 1962.50 in Dec 1997
- Lowest at 667.20 July 1989
Volatility:- 1 month: 9.26 %- 3 months: 8.27%- 1 Year: 7.12%- 3 Years: 5.72 %
Exchange rate forecast: Purchasing Power Parity
Exchange rate: 1 USD = 1141.10 KRW
Membership US: $55
Membership Korea: 35,000 KRW =>$30.67
Exchange rate forecast: International Fisher model
Based on the real interest rate of the country:
US real interest rate: 1.8%
Korean real interest rate: 3.7%
Spot rate USD/KRW: 0.00087
Forward rate 1 year: 0.000854
Forward rate 2 year: 0.000839
Exchange rate forecast: Forward Rate Model
Based on the forward rate:
- KRW will depreciate against USD in the future.
Source: CMEgroup
Translation effect: Cost effect
Imports become more expensive
increased cost to send USD denominated products to Korea to be sold
Price increases in foreign market*
less purchasing power of KRW relative to USD
*assumption: Costco raises prices in KRW
Translation effect: Revenue side
Net cash flows are worth less when translated from KRW to USD
Assets worth less on financial statements
represent gains or losses from exchange rates
changes posted in Translation Equity Account
Competitive effect
●Costco will lose customers or profits
●Choose between revenue or quantity
Recommendation to counter the effect
Forward foreign-exchange Contract Rate
Maintain the membership price
Thank you for your attention
Souces:
- Costco 10k form 2014.
- http://www.cmegroup.com/trading/fx/emerging-market/korean-won.html
top related