Question

Nukee, a United States shoe manufacturer and retailer, established two retail outlets in the city
of Shenzen, China, which has a population of 3.7 million. These outlets are massive and contain
products purchased locally as well as imports. As Nukee generates earnings beyond what it
needs in Shenzen, it may remit those earnings back to the United States. Nukee is likely to
build additional outlets in Shenzen or in other Chinese cities in the future.

a) Explain how the Nukee outlets in China would use the spot market in foreign exchange.

Answer 1

Nukee can use the spot market in foreign exchange as follows-

A. Spot market will be helping in instant settlement of various contracts for this company in China as rates can be booked on the spot market and current price so it will be helping in for managing this spot price.

B. It will be leading to lower price and much lower purchased cost so the company will be engaged in large transaction.

C. Spot market will also be offering with the current prices for various products it is producing and it will be providing with the details about the the strength of the currency and there would be a high level of transparency and efficiency

D. Spot market will also be helpful in arbitrage prospect for this company and it can make arbitrage profits.

E. Spot market transactions are carefully regulated so there is a very low level of chance of illegal transaction in spot market.