Benefiting from globalisation; Wildflowers Ltd
Wildflowers Ltd can either sell wildflowers in NSW
for a profit of A$100,000 on total sales of A$1 million, or in Japan
for the same profit of A$100,000 on sales of Yen 68 million - or A$ 1
million at today's exchange rate of A$1.00 = Yen 68.00.
The company therefore knows that if the exchange
rate falls to Yen 65.00 then their revenue in Japan goes up to 68
million / 0.65 = A$1,046,153 and profits by A$44,153 to A$146,153.
To increase profits by 46% Wildflowers can either
wait until the exchange rate reaches A$1.00 to Yen 65.00 or sell the
wildflowers today for delivery in one year - for, as it happens, the
one year 'forward foreign exchange rate' or 'outright rate' for the
Yen is currently at A$1.00 = Yen 65.00.
And there's no GST on exports.