Original Message:
Sent: 09-30-2015 03:19 AM
From: Mouhamad Izzat Alsbaini
Subject: minimum transfer amount.
Hi..
Think in this way..
Either you can get the money in the same day through the Wire Transfer costing u 12 USD which will permit u to re-invest the money in Short Term @ 9% for 2 days.
Or u can pay 1.5 and get the money in 2 days. but forfeiting the option of investing them for 2 days.
U should pursue the option which will generate short term interest on ur re-investment to cover the incremental cost of the wire transfer otherwise chose the Check Transfer ( and this what is about the question )
Better now?
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Mouhamad Izzat Alsbaini
Controller
Repsol Oriente Medio SA (ROMSA)
Erbil
Iraq
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Original Message:
Sent: 09-29-2015 02:49 PM
From: Roopjit Bhullar
Subject: minimum transfer amount.
So the A in the question represents the minimum amount that will meet the conditions in the question?
because the 9% is the cost of short term funds (this needs to be multiplied by the minimum transfer amount to cover the incremental costs) and the 2 day delay is for the check and the incremental cost for the 2 options I understand.
Is this logic correct?
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Canada
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Original Message:
Sent: 09-29-2015 04:22 AM
From: Mouhamad Izzat Alsbaini
Subject: minimum transfer amount.
Hi Roopjit:
What they are asking for is the minimum amount which justifying using the Wire Transfer over the Transfer Check as it cost the firm less money and below it will be cheaper to use the check.
The only difference between both options is the availability of the cash whether in the same day or in 2 days:
so we need to consider the incremental cost of the transfer charge 12 - 1.5 = 10.5 and what is the opportunity cost we forfeited which is the 2% for 2 days.
Example: Imagine we have a cash of 22,000 USD need to be transferred:
Utilizing the Wire: outflow 12 USD arriving the same day for which will be subject to cost of ST fund for 2 days = 2/360 * 9% * 22000 = 11 USD, so 12 - 11 = 1 USD
Utilizing the check: outflow 1.5 USD,
Based on this the net effect of using the wire will be cheaper for the company
Hope it was helpful and clear
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Mouhamad Izzat Alsbaini
Controller
Repsol Oriente Medio SA (ROMSA)
Erbil
Iraq
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Original Message:
Sent: 09-28-2015 04:18 PM
From: Roopjit Bhullar
Subject: minimum transfer amount.
Hi,
company transfers cash once per week to central account.
wire transfer costs $12 for same day cash transfer.
transfer check costs $1.50 with funds being available in 2 days.
company's cost of short term funds average 9% and use 360 day year.
what is minimum transfer amount that justify's cost of wire transfer over transfer check?
answer - 9%A x (2/360) = 10.50
A = $21,000
I was wondering why they are using such formula for this question? Why solving for A in that way?
Thanks.
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Canada
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