Brazil nut price rises – a case study of demand and supply

Food prices often rise or fall with good or bad harvests or because of a change in demand. A recent example is the price of brazil nuts, which by May this year had risen over 60% on European markets.

Part of the reason for the price rise has been on the demand side. Consumption of brazil nuts has increased as more people switch to healthier diets. This includes the purchase of the nuts themselves and as part of healthier snack foods. With supply being relatively inelastic, any rise in demand tends to have a relatively large effect on price.

A more acute reason is on the supply side. There has been a very poor harvest of brazil nuts. The nuts are grown largely in the Amazon basin which has been hit by drought linked to the El Niño effect. This, however, is only a temporary effect and future harvests should increase again as rainfall returns to normal. However, in the longer term, rainfall patterns may change with the effects of global warming.

The price rise in the UK has also be aggravated by the depreciation of the pound since the Brexit vote, which has fallen some 13% against the dollar since June 2016. A rise in the dollar price of brazil nuts has thus led to an even bigger rise in their sterling price.

Requirements:

1) Explain the specific supply conditions that have affected the price of brazil nuts in 2017.

2) Why did prices rise ahead of the change in supply?

3) How has the size of the price rise been affected by the price elasticity of demand for brazil nuts?

4) What determines the price elasticity of demand for brazil nuts? Explain in detail

QUESTION 44

Historically, Russia’s international identity can be described as

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QUESTION 45

Which of the following represents a core component of Confucianism?

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QUESTION 46

Gorbachev’s reforms in the 1980s relied on the policies of glasnost and perestroika, or

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QUESTION 47

As they came into power in 2009 the Democratic Party of Japan promised voters to

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QUESTION 48

Deng Xiaoping introduced the “household responsibility system,” which referred to

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QUESTION 49

Which of the following statements about the United Kingdom’s relationship with the European Union is accurate?

Hot & Cold and Caldo Freddo are two European manufacturers of home appliances that have merged. Hot & Cold has plants in France, Germany, and Finland, where Caldo Freddo has plants in the United Kingdom and Italy. The European market is divided into four regions: North, East, West, and South. Plant capacities (millions of units per year), annual fixed costs (millions of euros per year), regional demand (millions of units), and variable production and shipping costs (euros per unit) are listed in the following table.

Each appliance sells for an average price of 300 euros. All plants are currently treated as profit centers, and the company pays taxes separately for each plant. Tax rates in the various countries are as follows: France, 0.25; Germany, 0.25; Finland, 0.3; UK 0.2; Italy, 0.35.

1. Before the merger, what is the optimal network for each of the two firms if their goal is to minimize costs? What is the optimal network if the goal is to maximize after-tax profits?

Suppose Boeing Corporation exported a Boeing 787 to British Airway and billed £20 million payable in one year (i.e., Boeing has a £20 million receivable in one-year). The money market rates, foreign exchange rates, and option prices are given as follows:

The U.S. one-year interest rate: 2% per annum

The U.K. one-year interest rate: 3.5% per annum

The spot exchange rate: $1.32/£

One-year forward rate: $1.2985/£

Call option: exercise rate: $1.31, premium: $0.015/£

Put option: exercise rate: $1.31, premium: $0.02/£

(1) Money Market Hedge: Show money market hedge strategy (i.e., through borrowing/lending) that Boeing can use to hedge this transaction exposure. Be sure to include the following.

(a)State which currency Boeing should borrow and calculate how much it should borrow.

(b) State the transactions needed to be done and the cash flows at t=0 and t=12 (i.e., today and one-year from today) by constructing a cash flow table.

(2) Option Market Hedge:

(a) Should Boeing use a Call or a Put to hedge this exposure?

(b) How much net USD will Boeing receive with an option hedge?

(3) Suppose Boeing’s analyst predicts that the exchange rate between USD and UK pound in 1 year is between $1.32/£ and $1.33/£. (To receive full credit, you need to answer the questions qualitatively and quantitatively.)

1. At which exchange rate will Boeing be indifferent between Money Market Hedge and Option Market Hedge?
2. If the analyst’s prediction is correct, among the Forward Market Hedge, Money Market Hedge, and Option Market Hedge, which one is preferable and why?

1. Boeing just signed a contract to sell a Boeing 787 aircraft to British Airways. British Airways will be billed £26 million which is payable in one year. The current spot exchange rate is $1.40/£ and the one-year forward rate is $1.43/£. The annual interest rate is 6.0% in the U.S. and 5.0% in UK. The premium for a one-year put or call option with the exercise rate of $1.43/£ is 1%. Boeing is concerned with the volatile exchange rate between the dollar and the pound and would like to hedge exchange exposure. Four alternatives are available to Boeing to manage the exposure: 1) remain unhedged; 2) hedge in the forward market; 3) hedge in the money market; or 4) hedge in the options market. (Show all work)

(a) What action does Boeing need to take for each hedging alternative?

(b) Calculate the future dollar proceeds of the sale to British Airway under the four alternatives if the spot exchange rate becomes $1.45/£ in one year.

(c) Calculate the future dollar proceeds of the sale to British Airway under the four alternatives if the spot exchange rate becomes $1.40/£ in one year.

(d) At what future spot exchange do you think Boeing will be indifferent between the option and money market hedge?

(e) At what future spot exchange do you think Boeing will be indifferent between the option forward hedge?

(f) At what future spot exchange do you think Boeing will be indifferent between the forward and money market hedge?

(g) Illustrate the future dollar proceeds of the sale to British Airway under the four alternatives.

Need hlep with question A to G

PROBLEM 5: FOREIGN CURRENCY (20 MARKS TOTAL)

Use the information here for answering questions 1 to 3 on this page.

On 1 April 2020, Winton Ltd, an Australian entity, places an order for GBP £200,000 of inventory with Austen plc, a UK supplier. On the same date, Winton Ltd enters into a forward exchange contract with the bank to buy GBP £200,000, to be settled on 31 July 2020. The goods are shipped FOB London on 1 May 2020 and are paid for on 31 July 2020. Winton Ltd has a reporting date of 30 June.

The following exchange rates are applicable.

       Spot rate            Forward rate for 31/7/20
1 April 2020          A$1 = 0.63 GBP               A$1 = 0.61 GBP
1 May 2020          A$1 = 0.67 GBP               A$1 = 0.64 GBP
30 June 2020       A$1 = 0.62 GBP               A$1 = 0.60 GBP
31 July 2020         A$1 = 0.59 GBP               A$1 = 0.59 GBP

Q1: Complete the table showing the movement and the change in value of the hedged item

Type text or numbers as appropriate in the following table. Enter numbers as numerals only. Use a negative symbol '-' in front of your number where appropriate to indicate a loss. Enter a 0 if you do not need to enter data in that field.

Q2: Complete the table showing the movement and the change in value of the hedging instrument

Type text or numbers as appropriate in the following table. Enter numbers as numerals only. Use a negative symbol '-' in front of your number where appropriate to indicate a loss or a liability. Enter a 0 if you do not need to enter data in that field.

Q3: Provide the journal entries for Winton Ltd to reflect the above transactions

In the following problems , give a complete hypothesis test for each problem. Use the method described. Make sure you include the original claim in symbols, The null and alternative hypothesis, the significance level, the actual formula and calculation of the test statistic, give the p-value and a  drawing of critical region ,the decision concerning the null hypothesis and a conclusion stated in non technical terms

1. In a recent year, of the 109,857 arrests for Federal Offenses, 31968 were for drug offenses. Use a 0.01 significance level to test the claim that the drug offense rate is less than 30%.

2. In a previous test baseballs were dropped 24 ft. onto a concrete surface, and they bounced an average of 984 in. In a test of a sample of 40 new balls, the bounce heights had a mean of 92.67 in. with a standard deviation of 1.79 in. Use a 0.05 significance level to determine whether there is significant evidence to support the claim that the new balls have bounce heights with a mean different from 92.84.

3. A communications industry spokesperson claims that over 80% of Americans either own a smart phone or have a family member that does.  In a random survey of 1036 Americans, 956 said that they or a family member owns a smart phone. Test the spokesperson’s claim at the  level.

4. A large university says the mean number of classroom hours per week for full-time faculty is more than 9. A random sample of the number of classrooms hours for full-time faculty for one week is listed. At  test the university’s claim. Assume normality

10.7     9.8       11.6     9.7       7.6       11.3     14.1     8.1       11.5     8.5       6.9

5. USA Today ran a report about a University of North Carolina poll of 1248 adults from the southern United States. The poll asked them if they believed that Elvis was alive. 99 of the 1248 adults believed that Elvis still lives. The article began with the claim that almost 1 out of 10 Southerners still think Elvis is alive. At the 0.01 significance level, test the claim that the true percentage is less than 10%.

6. The FDA regulates that fish that is consumed is allowed to contain 1.0 mg/kg of mercury. In Florida, bass fish were collected in 53 different lakes to measure the amount of mercury in the fish. The data for the average amount of mercury in each lake is in table below Do the data provide enough evidence to show that the fish in Florida lakes has more mercury than the allowable amount? Test at the 10% level.

7. The Kyoto Protocol was signed in 1997, and required countries to start reducing their carbon emissions. The protocol became enforceable in February 2005. In 2004, the mean CO₂ emission was 4.87 metric tons per capita. The data below are a random sample of CO₂ emissions in 2010. Is there enough evidence to show that the mean CO₂ emission is lower in 2010 than in 2004? Test at the 1% level.

Determine earnings before interest and taxes, net income, and also the cash flow from operations for the following firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000 purchase of productive equipment, no changes in working capital, and a tax rate of 35%.

You will have a tuition payment this time next year, payable in US dollars. Will you take any action, to cover changes in exchange rates? If so, what would you do, and why? For US students, assume you will spend a semester abroad, in the Euro zone, and will need to pay tuition in the local currency, so you have the same challenge.