Answer to Question #74525 in Management for dennis

Question #74525
A medium sized manufacturing company in South Africa is tendering for an order in Kuwait. The tender conditions states that the payment will be made in Kuwait dinars 18 months from now. The company is unsure at what price to tender. The company’s marginal cost of production at the time of tendering is estimated to be South African Rand 2 million. A mark up 20% is normal for the company.
Exchange rate (Dinar per South Africa Rand)
Spot 5.467-5.503
No forward rate exists for 18 months’ time

South Africa KUWAIT
Annual inflation rate 9 3
Borrowing interest rate per annum 14 9
Lending interest rate per annum 9 3.5

As the finance manager of South African Company, recommend what tender price should be used (20 marks)
Expert's answer
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