Question

IWP Trading, a South African-based company, specialises in the procurement and distribution of a diverse spectrum of the world’s finest hardwoods and a wide selection of panel products. The company sources the bulk of its hardwoods from Europe and South America, and sells them to its South African customers.

Due to favourable interest rates in Europe, the European suppliers offer IWP Trading generous 90-day payment terms. South American suppliers, on the other hand, only offer 60-day terms.

Required:

3.1       Briefly discuss the type(s) of exchange rate risk that IWP Trading is exposed to.   

3.2 What two (2) measures can IWP Trading adopt to reduce the impact of the exchange rate risk identified in Question 3.1 above? Explain how

                   IWP Trading will implement these measures.                                 

Answer 1

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