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Efficiency of Exports

Efficiency of Imports

Efficiency of Exports

Efficiency of Imports

The efficiency of imports for domestic sales
1.1. Economic Effect of imports for domestic sales is an absolute economic indicator expressed in monetary units which represents the difference between selling value of the imported goods in the domestic market and the total costs for imports:

The economic meaning: _____________________________________________________________________________________________________________________________________________

1. 2.Economic Efficiency of imports for domestic sales is a relative economic indicator, expressed in relative units which represents the ratio of the selling value of the imported goods in the domestic market and the total costs for imports:

The economic meaning: _____________________________________________________________________________________________________________________________________________

Efficiency of Exports

2.1.Economic Effect of exports is an absolute economic indicator expressed in monetary units which represents the difference between the revenue (proceeds) received from the export transaction, and the costs of production and export of goods:

The economic meaning: _____________________________________________________________________________________________________________________________________________

2.2.Economic Efficiency of exports is a relative economic indicator expressed in relative units which represents the ratio of the revenue (proceeds) received from the export transaction, and the costs of production and export of goods:

The economic meaning: _____________________________________________________________________________________________________________________________________________

Exercise#1. Ukrainian company (Donetsk) specializes in the production and sales of electric engines. Costs per unit of production is 1200 UAH. Selling price of goods (including VAT) in the domestic market - 1650 UAH/unit.

The company has received commercial request for supply of 250 electric engines to India (Delhi) by air transport (main transportation is Kiev-Delhi).

The foreign buyer offeres 2 alternative prices for different terms of delivery INCOTERMS-2010: FCA Kiev-airport: $195 (per unit), and CIP Delhi-airport: $220 (per unit).

What is the best option for the Ukrainian producer? Please, calculate and compare the results (indicators) of economic effect and economic efficiency for sale both on domestic and foreign market, taking into account the delivery costs give in the table.

Exchange Rate: 1USD = 8.0UAH.

Table-Delivery costs

Calculation Table USD

Answer: _______________________________________________________________________________________________________________________

Exercise#2.
Ukrainian company (Kiev), which specializes in importing and wholesaling of household radiators on the market of Ukraine received commercial offers for supply of 1000 units from producers of similar goods from Germany and China (Table 1). Delivery cost by air transport to Ukraine is 10000 EUR. Countries of origin of goods and countries of production are the same.

Import customs duty rates: Privileged – 5 %; Full – 10%.

Cost related to sale of the goods on the domestic market is 20000 UAH.

Exchange rates: 1EUR = 11,0 UAH., 1CNY = 1,3 UAH.

Table 1. Commercial offers

Please, chose the the most favorable offer for Ukrainian importer, taking into account the cost of delivery and customs duties (import duties, VAT). Please, evaluate the Economic Effect and Economic Efficiency of the both commercial offers.

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SELF-CONTROL QUESTIONS

I. Please, answer the questions below.

1. Please, describe how the indicator "Economic Effect of imports " is calculated?

2. What is the economic meaning of the indicator "Economic Effect of imports "?

3. Please, describe how the indicator "Economic Efficiency of imports " is calculated?

4. What is the economic meaning of the indicator "Economic Efficiency of imports "?

5. Please, describe how the indicator "Economic Effect of exports " is calculated?

6. What is the economic meaning of the indicator "Economic Effect of exports "?

7. Please, describe how the indicator "Economic Efficiency of exorts " is calculated?

8. What is the economic meaning of the indicator "Economic Efficiency of exports "?

INDIVIDUAL ASSIGNMENT:

EFFICIENCY OF IMPORTS (10points)

Ukrainian company "UkrImport" specializes in import and wholesale distribution of goods in the Ukrainian market.

"UkrImport" received a commercial offer from a foreign supplier concerning import of goods to Ukraine on terms of delivery FCA warehouse of the seller.

Description of goods and the offer price are given in Table 1. The market research results as to transport and insurance services are given in Table 2. Initial data for the calculations are in Tables 1-4.

Exchange rates on the calculation date: 1 USD = 8 UAH, 1 EUR = 11 UAH.

Please, choose your variant according to your personal number in the list of the group

The task:

1. Calculate the costs related to the imports including delivery to Ukraine by road transportation, cargo insurance against accidental loss or damage, as well as import customs duties. Calculate the total costs for the ukrainian importer both per unit and the consignment of the imported goods.

2. Evaluate the expediency of the offer economically: with indicators of economic effect and economic efficiency. Please, compare the results of the potential import transaction to usual rate of return (trade margin, mark-up) accepted for the sale of goods on the domestic market.

3. Assess the impact of currency fluctuations on the outcome of the transaction. Please, determine

1) the maximum exchange rate providing usual mark-up (without changing the sale price on the domestic market);

2) the exchange rate at which the outcome of the import transaction is zero (revenue from sales on the domestic market is equal to the total costs on imports and sales).

3) Please, estimate the price of goods on the domestic market providing usual rate of return to the Ukrainian importer at the new exchange rates:

1 USD = 16 UAH, 1 EUR = 20 UAH.

Initial data

Table 1 - Details of the offer

Table 2 - – Initial data

Table 3 - The cost of transport and insurance services

Table 4 - Data for calculating the cost of transport services