- 20 Marks
ITF – APR 2024 – L3 – Q3 – Cost Calculation for Specialized Steel Quotations
Calculate the effective cost of 100 tons of specialized steel from different country quotations considering payment terms and additional information and determine the most favorable quotation ignoring other charges.
Question
Held and Sons are Stockholders in London whose account is operated on Overdraft basis. Hitherto, they have obtained their Stocks in the UK, but they are now forced to look elsewhere for supplies of specialized steel. They have received the following quotations:
| Country | Price Per Ton | Payment Terms |
|---|---|---|
| a. Norway | NOK 2,125 | FOB, Oslo Open Account: Settlement one month after shipment. |
| b. Denmark | DKK 1,560 | CFR, London Draft drawn payable two months after shipment (Collection Charges for buyer). |
| c. Turkey | TRY 2112 | CIF, London Irrevocable Documentary Credit payable three months after shipment. |
Using additional information set out below, show by calculating the cost of 100 tons of the steel, which of quotations (a), (b) and (c) would be the cheapest for your customer.
Freight charges from any European Port £5 per ton
Insurance (to be affected on 110% of CIF value) 1% payable in £
Collection Charges (total for both banks) ¼ %
Documentary Credit Charges (including Acceptance Commission) ¾ %
Overdraft Interest for one month (considered as 1/12 of a year) 15% pa.
Ignore all other possible charges.
It is to be assumed that your customers would have covered any Exchange Risk on the day of shipment, in accordance with rates quoted below, and that all payments and charges relative to any particular quotation are debited on the same day.
| Spot | One Month | Two Months | Three Months | |
|---|---|---|---|---|
| Norway | 12.20 – 12.50 | 10 – 12c disc | 15 – 18c disc | 20 – 23c disc |
| Denmark | 8.90 – 9.10 | 8 – 5c pm | 10 – 8c pm | 14 – 11c pm |
| Turkey | 11.80 – 12.05 | 12 – 9c pm | 14 – 11c pm | 16 – 12c pm |
Find Related Questions by Tags, levels, etc.
- Topic: CIF), Foreign exchange rates, Forward Contracts, Import financing, Risk Management
- Series: APR 2024
