INTERNATIONAL FLOW OF FUNDS: A Case Study

BLADES PLCKristelle B. Jarabelo

August 2, 2013

CASE BACKGROUND

Blades PLC is the U.K. based manufacturer of the “Speedo’s Roller Skates”

Ben Holt, the company’s financial director is contemplating to increase their exports in Thailand.

Also, to import some components such as rubber and plastic from Thailand to the U.K.

CASE BACKGROUND

CASE BACKGROUND

Blades’ invoice is in THB Blades’ primary customer in Thailand has

committed to purchase a certain quantity of Speedos if the invoice remains as THB

Current forecasts are dismal: increase in inflation, decrease in national income, and depreciation of the Baht.

THE IDENTIFIED PROBLEMSBLADES PLC

PROBLEM OF THE CASE

How will Thailand’s economic forecast affect Blades’

financially given their current arrangements with their supplier and customers?

AREAS TO CONSIDERBLADES PLC

CONSIDERATIONS

1.Thailand’s Trade Flow2.Blades’ Financial Position3.Competition

CONSIDERATION

International trade can significantly affect a country’s economy.

THAILAND’S FLOW OF TRADE

CONSIDERATION

• Inflation– If a country’s inflation rate increases relative to the

countries with which it trades, its current account would be expected to decrease, other things being equal.

• National Income– If a country’s income level (national income)

increases by a higher percentage than those of other countries, its current account is expected to decrease, other things being equal.

THAILAND’S FLOW OF TRADE

CONSIDERATION

• Government Restrictions– A country’s government can prevent or discourage

imports from other countries. By imposing such restrictions, the government disrupts trade flows.

• Exchange Rate– If a country’s currency begins to rise in value

against other currencies, its current account balance should decrease, other things being equal.

THAILAND’S FLOW OF TRADE

Thailand’s Adjusted National Income

GBP vs THB

Thailand’s Development Indicator

CONSIDERATION

• Blades has not been performing well with their recent ROA at only 7%.

• Shares fell from a high of GBP20 per share three years ago to only GBP12 last year.

• If Blades increases its business in Thailand, it means increasing their investment.

BLADE INC’S FINANCIAL CONDITIONS

CONSIDERATION

• While Blades’ face little competition in Thailand from their fellow UK manufacturers, their invoicing strategy may negatively affected the company should both Thai consumers and firms adjust their spending habits if certain developments and economic factors occur.

COMPETITION

ALTERNATIVE COURSES OF ACTION

BLADES PLC

ALTERNATIVES

1.Status Quo2.Withdraw Investment3.Expand Investment

RECOMMENDATIONBLADES PLC

RECOMMENDATION

Expand Investment in Thailand

RECOMMENDATION

A high level of inflation in Thailand relative to the United Kingdom could affect Blades favorably

The arrangement Blades has with its primary Thai importer somewhat mitigates the effect of decreasing national income.

RECOMMENDATION

A continued depreciation of the Thai baht would hurt Blades

However, the demand for Blades’ products may increase relative to that of its U.K. competitors exporting to Thailand

RECOMMENDATION

For sources of capital, an agency extending direct loans to corporations involved in international trade is the International Financial Corporation (IFC).

END OF REPORT

REFERENCESwww.tradingeconomics.com

www.databank.worldbank.orgwww.cia.gov

www.oanda.com www.wikipedia.com

www.cengageasia.com

Feel free to ask questions!

Jarabelo, Kristelle B.International Flow of Funds

Case Study