Neco Model Questions Vol1 2019 Commerce Question 4

Practice essay / theory question 4 from the 2019 Neco Model Questions Vol1 Commerce examination. This question covers Foreign Trade, Importation, Exchange Rate, Costing, Risk Management .

Neco Model Questions Vol1 2019 Commerce Essay / Theory
Topics: Foreign Trade Importation Exchange Rate Costing Risk Management
Question 4 NECO_MODEL_QUESTIONS_VOL1 • 2019 • COMMERCE • essay

A Nigerian importer plans to import 5,000 kg of cocoa beans from Ghana. The world market price is US$2.00 per kilogram. The current spot exchange rate is ₦750 per US$1. Import duty is 5 % of the CIF (Cost, Insurance, Freight) value. Freight charges amount to US$0.30 per kilogram. Insurance is charged at 0.2 % of the CIF value. To hedge against exchange‑rate risk, the importer can enter a forward contract at a rate of ₦740 per US$1.

Question Parts

( a )
Calculate the total CIF value in US dollars, showing clearly how insurance is incorporated.
( b )
Determine the total cost in Naira if the importer pays using the spot exchange rate of ₦750 per US$1, including import duty.
( c )
If the importer uses the forward contract at ₦740 per US$1, compute the total cost in Naira and the effective cost per kilogram.

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About This Question

This is Neco Model Questions Vol1 2019 Commerce Question 4. It is one of the essay questions from the 2019 Neco Model Questions Vol1 Commerce examination.

The question covers Foreign Trade, Importation, Exchange Rate, Costing, Risk Management .

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