ght lower interest rates. In this latter instance, the value of the US$ in relation to other currencies might decrease. Thus, in such a case in relation to those emerging market nations where SKU products were purchased for The Gap, the prudent action would be to hedge currency requirements in relation to those emerging market nations that did not tie the values of their currencies to the US$.
Q4: A gross margin of 40 percent on a US$1,000,000 sale means that the company's cost of goods sold is US$600,000. The buyer is asking to company to carry US$600,000 in actual costs for a period of 90 days. The actual producer of the goods will carry the cost to the company for a period of 60 days for a price premium of 10 percent, which would add $60,000 to the company's cost of goods sold, which, in turn, would reduce the company's gross margin on the sale to 34 percent. In effect, the company, should it agree to both the buyer's and the producer's terms, would be carrying US600,000 in actual costs for a period of 30 days for a gross margin of 34 percent. At a prime rate (an assumption is made that the company can qualify to borrow at the New York prime rate) of eight percent for 30 days on 14 December 1998, it would cost the company approximately US$4,000 to carry US$600,000 for 30 days. In turn, this action would increase the company's cost of sales on the contract to $664,000, while reducing the company's gross margin to 33.6 percent. Were the decision mine to make, I would accept bot
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