Brexit has led to the relocation of many multinational companies from the United Kingdom to continental Europe. This has in turn reduced the demand for real estate and many other local goods and services in the country on a long-term basis.

In addition to its impact on demand, Brexit is likely to lower the productivity of tradables in the UK. The reason is that after Brexit, British producers are likely to face hurdles in their access to the EU as their biggest trading partner, and this limits their ability to exploit the division of labor and economies of scale. What is the likely long-run impact of this change on the real exchange of the British pound? Please make sure to explain the mechanism that supports the answer you provided.

Question 1
IAS 10: Events after the Reporting Period addresses two issues: adjusting events, namely, those events that provide evidence of conditions that existed at the end of the reporting period and non-adjusting events: which are those events that are indicative of conditions that arose after the reporting period that need to be reflected in the financial statements. Amounts recognized in the financial statements are adjusted to reflect adjusting events, but only disclosures are required for material non-adjusting events. Management’s judgment is required in determining whether events that took place after the end of the reporting period are adjusting or non-adjusting events. This will be highly dependent on the reporting date and the specific facts and circumstances of each company’s operations. Coronavirus has overwhelmed the world in various ways and at various times. China was the first to announce spread of the virus in November, 2019. UK announced its first case of coronavirus in February, 2020 and Ghana announced its first case in March, 2020. While company A resides in China, company B resides in the UK and C resides in Ghana. Company A’s financial reporting period ends on 31st October each year; company B’s financial reporting period ends on 31st December, each year and company C’s financial reporting period ends on the 31st of March each year. Management of these companies may need to continually review and update the assessments up to the date the financial statements are issued given the fluid nature of the crisis and the uncertainties involved.
You are required to discuss in respect of each of the companies, the potential management conclusions of the impact of the coronavirus on end of year reporting, mindful of IAS 10.
Total Marks: 20marks

The goods-trade gap was £8.3bn, compared with £7.6bn in October, the Office for National Statistics said today. Economists predicted £7.5bn, according to a Bloomberg News survey. The Bank of England last week cut the benchmark interest rate to 1.5pc, the lowest in its history, to combat the recession. Policy makers said that the world economy ``appears to be undergoing an unusually sharp and synchronised downturn'' which will hurt global trade. “We see another rate cut in February,'' said David Page, an economist at Investec Securities. ``The bank is aware that we're going through a particularly sharp adjustment in global demand.'' Exports fell 5.8pc on the month while imports dropped 1.8pc, the statistics office said. Overseas sales of oil, chemicals, cars and other commodities slipped. The goods trade gap with countries outside the European Union widened to 5.3bn pounds in November, the most on record. The trade surplus with the U.S. narrowed to £301m, the smallest since February 2007, the statistics office said today. Oxford, England-based Electrocomponents Plc, a supplier of 350,000 products from cables to calculators, said last month sales worsened on weaker demand in Europe, the Asia-Pacific region and the U.S. The International Monetary Fund forecasts recessions in the US, Japan and the euro area. The UK economy contracted 0.6pc in the third quarter after stalling in the second, government data show.

a) What has been the recent performance of the UK trade balance?

b) What has been the reaction of the Bank of England to the current economic recession?

c) Which was the economic rationale behind the BoE decisions?

d) How effective was monetary policy?

13) Trident — the same U.S.-based company discussed in this chapter, has concluded a second larger sale of telecommunications equipment to Regency (U.K.). Total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, which of the following statements about option hedge is correct?

Select one:

a.Buy put options of £2,000,000 with strike of $1.54/£ and receive a (net) minimum of $3,052,116.33 at end of 90 days.

b.Sell put options of £2,000,000 with strike of $1.54/£ and receive a (net) minimum of $3,048,077.55 at end of 90 days.

c.Sell put options of £2,000,000 with strike of $1.55/£ and receive a (net) minimum of $3,052,116.33 at end of 90 days.

d.Buy put options of £2,000,000 with strike of $1.55/£ and receive a (net) minimum of $3,048,077.55 at end of 90 days.

e.Buy put options of £2,000,000 with strike of $1.55/£ and receive a (net) minimum of $3,052,116.33 at end of 90 days.

Trident — the same U.S.-based company discussed in this chapter, has concluded a second larger sale of telecommunications equipment to Regency (U.K.). Total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, which of the following statements about option hedge is correct?

Select one:

Sell put options of £2,000,000 with strike of $1.55/£ and receive a (net) minimum of $3,052,116.33 at end of 90 days.

Buy put options of £2,000,000 with strike of $1.55/£ and receive a (net) minimum of $3,048,077.55 at end of 90 days.

Buy put options of £2,000,000 with strike of $1.55/£ and receive a (net) minimum of $3,052,116.33 at end of 90 days.

Buy put options of £2,000,000 with strike of $1.54/£ and receive a (net) minimum of $3,052,116.33 at end of 90 days.

Sell put options of £2,000,000 with strike of $1.54/£ and receive a (net) minimum of $3,048,077.55 at end of 90 days.