Question Tag: Close Out and Extension

Agribusiness Plc. is a large corporate in the commodity industry specializing in mango production around Somanya and Afram Plains. After surviving the Covid-19 pandemic, which nearly collapsed the company, Agribusiness is on its feet firmly and now leading the export of fresh mangoes in the West African sub-region. Taking advantage of the African Continental Free Trade

Area (AfCFTA), the company is now looking beyond its European buyers to meet the demand needs of other African countries.

Last week, the Chief Executive Officer and the Chief Operating Officer invited you to their warehouse to discuss their export contracts with you. Both you and your customers were very happy because this transaction will enable them to start paying off the loan facilities your bank has extended to them. These four contracts are for the export of 20 tons of fresh mangoes to

Switzerland, New Zealand, Zambia and Botswana in the ratios of 0.35; 0.30; 0.15 and 0.20 respectively. One month after the meeting at the warehouse, Agribusiness engaged Sintim Freight Forwarders to handle the export orders to the buyers. Goods were eventually shipped and related documents submitted through your counters for payments which were expected in exactly one month’s time in Ghana Cedi for your customer’s account. On 1st September, the company entered into one-month forward exchange contract with your bank to hedge their eventual expected proceeds.

Price per ton at CIF values to their respective destinations are:

Switzerland                           New Zealand                                 Zambia                                   Botswana
CHF 3, 410                            NZD 5, 783                                  ZMW 58, 765                          BWP 44, 970

September 1st rates quoted by your bank are as follows:

Spot Rates                                                              One Month Forward

CHF/GHS 8.2350 – 8.2365                                0.047 – 0.053 Cedis dis.

NZD/GHS 4.8610 – 4.8625                                0.023 – 0.032 Cedis dis.

USD/GHS 7.8530 – 7.8545                                0.032 – 0.040 Cedis dis.

GHS/ZMW 2.1000 – 2.1015                               0.025 – 0.035 Kwa. dis.

GHS/BWP 1.5715 – 1.5725                                  0.040 – 0.053 Pula. dis.

October 1st Spot Rate One Month Forward

USD/GHS 7.8450 – 7.8465              0.35 – 0.45 Cedis dis.

NZD/GHS 4.8590 – 4.8610             0.018 – 0.022 Cedis dis

All the expected export proceeds were received by your bank on due date except the one from New Zealand where the buyer could not clear the goods due to problems at Port Nicholson, Wellington. Agribusiness has accordingly extended the forward contract by one month with your bank.

REQUIRED

a. Calculate the amount of foreign currency from each buyer. [4 marks]

b. Calculate the applicable forward rates. [8 marks]

c. Calculate the amount credited to your customer’s GHS account from the foreign currencies received on their behalf. [4 marks]

d. Close out and extend the New Zealand transaction and show the total GHS your customer received under the four export contracts. [4 marks]

[Total Marks 20]