Corporate Finance - Assignment 01 Example | Topics and Well Written Essays - 1500 words

Corporate Finance - 01 - Assignment Example It was prudent, as the finance manager, to make a transaction decision that had the highest competitive advantage. The decision would be based on the exchange rate for both currencies based on the AED. By monitoring the exchange rate for a period of five days, it was evident that the best decision would be established. In addition, monitoring the exchange rate for both currencies in relation to the AED provided the opportunity to establish the best possible currency to use; the most stable among the two. a) Check the exchange rate for a period of five days and create a table of comparisons of how much will be your AED50m worth on each of the five days in both Euros and GB pounds. Choose the currency you will use for your transactions. Considering the purchasing power parity, the law of one price states that similar goods should have a similar price after taking into account the exchange rate. This is before transportation costs have been incorporated to the cost of bringing the goods to the desired location. In this case, the Great Britain Pound will be used for the transactions because there are minimal deviations in the exchange rate from 24th December to 28th December. In addition, the exchange rate is stable as opposed to the Euro. Purchasing the equipment on the second day would save the company As the finance manager, the option maximizes utility, but at a relatively higher cost compared to the first day of monitoring the exchange rate. Purchasing the equipment on the third day would save the company Contrary to the savings on the first and second day; the third day proves to have AED124 and AED2, 606 more savings respectively. The third day would be the best option because the exchange rate maximizes utility at the lowest cost. Purchasing the equipment on the fifth day would save the company The savings are relatively lower than those on the first and third day. Although the option maximizes utility, it does so but at a