1. Assuming that banks in Thailand issue a time draft on behalf of Sports Equipment, Inc., and Major Leagues, Inc., would Blades receive payment for its roller blades before it delivers them? Do the banks issuing the time drafts guarantee payment on behalf of the Thai retailers if they default on the payment?
2. What payment method should Blades suggest to Sports Gear, Inc.? Substantiate your answer.
3. What organization could Blades contact in order to insure its sales to the Thai retailers? What type of insurance does this organization provide?
4. How could Blades use accounts receivable financing or factoring, considering that it does not currently have accounts receivable in Thailand? If Blades uses a Thai bank to obtain this financing, how do you think the fact that Blades does not have receivables in Thailand would affect the terms of the financing?
5. Assuming that Blades is unable to locate a Thai bank that is willing to issue an L/C on Blades’ behalf, can you think of a way Blades could utilize its bank in the United States to effectively obtain an L/C from a Thai bank?
6. What organizations could Blades contact to obtain working capital financing? If Blades is unable to obtain working capital financing from these organizations, what are its other options to finance its working capital needs in Thailand?
| Blades, Inc., has recently decided to establish a subsidiary in Thailand to produce ?oSpeedos,?? Blades’ primary roller blade product. In establishing the subsidiary in Thailand, Blades was motivated by the high growth potential of the Thai roller blade market. Furthermore, Blades has decided to establish a subsidiary, as opposed to acquiring an existing Thai roller blade manufacturer for sale, in order to maintain its flexibility and control over the operations in Thailand. Moreover, Blades has decided to issue yen-denominated notes to partially finance the cost of establishing the subsidiary. Blades has decided to issue notes denominated in yen instead of baht to avoid the high effective interest rates associated with the baht-denominated notes. Currently, Blades plans to sell all roller blades manufactured in Thailand to retailers in Thailand. Furthermore, Blades plans to purchase all components for roller blades manufactured in Thailand from Thai suppliers. Similarly, all of Blades’ roller blades manufactured in the United States will be sold to retailers in the United States and all components needed for
Blades’ U.S. production will be purchased from suppliers in the United States. Consequently, Blades will have no exports and imports once the plant in Thailand is operational, which is expected to occur early next year.