FIN1200 International Trade Finance

Case Study #3 Week 06

Case Study #3
Assigned: Week 06
Due: Week 09

Your sales person has brought you two sale opportunities, and you can only pick one to work on.
Which opportunity do you take, how much will you need to borrow, and why did you choose
that opportunity?

Background: You have no cash and will need to borrow money on your line of credit. Line of
credit is at 8% annually. FX forward contracts are 1% of value for total value of the sales
contract, LC Discount Rates will be 3% of value. ARI for open terms are 0.5% for USA, and 1.5%
for Mexico

Opportunity #1: Customer is located in the United States. Sale will be for $1M USD, open terms
180 days. It will take you 60 days to produce the products for this customer. Costs during
Production are 100K per week.

Opportunity #2: Customer is located in Mexico. Sale will be for $1,100,000 (as of today’s
exchange rate), but they buyer wants to pay in Mexican Pesos. The buyer will post a $200,000
Letter of Credit, and wants the balance to be on open terms, Net 30. It will take you 14 days to
produce the products and it will cost you $50K per week.