QUESTION 2,000 ASTM International standards for the construction industry.

QUESTION 9) What do exchange rate between countries reflect? Why do they fluctuate?

SOLUTION

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Exchange rete between countries reflects the variations in the international business which impacts directly or indirectly on business, that is, the bill of exchange. The exchange rate determines how the economy is performing, low exchange rate in a country means strong demand for foreign currency.

Exchange rates fluctuate due to a variety of reasons which include; inflation, speculation, government debt, difference in interest rate, economic growth/recession, political stability and economic performance amongst others.

 

QUESTION 10) How do extractive plants such as mining or forestry, compare to the description of construction, manufacturing and agriculture plants?

SOLUTION

Extractive plants such as mining, and forestry belongs to the category of manufacturing and agricultural plants respectively. Construction plants are the output of manufacturing plants, and they construct the manufacturing plants. Construction plants vary in size and complexity and are mobile with the output remaining fixed and unique while manufacturing plants always have a fixed location and the output are moved off the plant site and is numerous. The agricultural plant also has a fixed location, but equipment and plan could either be fixed or mobile with the output taking off plant sites and is also numerous. Value of output in construction plant is expensive while in manufacturing plant the value of the output can vary from cheap to expense but the value of output in agricultural plant is inexpensive.

 

QUESTION 11) In what way does the mission of ASTM coincide with construction?

SOLUTION

ASTM has more than 2,000 ASTM International standards for the construction industry. These standards are the work of numerous technical committees. The collective expertise of these committees is reflected in ASTM Standards in Building Codes, which includes standards to help design buildings that meet international code requirements.

Examples of the standards developed by ASTM for the construction industry includes; Thermal Insulation Standards, Building Standards, Cement Standards and Concrete Standards, Wood Standards, Fire Standards and Flammability Standards, Geotechnical Engineering Standards, Masonry Standards, Road Standards and Paving Standards and Roofing Standards just to mention a few

 

 

QUESTION 1.16) An oxygenated high pressure ultra high temperature reactor vessel assembly can be fabricated in Germany, England or Canada and shipped to Saudi Arabia for integration in the construction of a refinery. Quotations are received from the fabricators in those country and rationed to the U.S. estimates in terms of U.S. currency by using table 1.2 and spot exchange rates. According to the contracts, payment is electronically transferred from the design-constructor to the fabricator on the day the reactor reaches the port of entry of Saudi Arabia. The exchange rate at the time of the schedule arrival is, however, expected to be different and is shown as a relative change.

 

 

 

 

 

Germany

England

Canada

Ratio of subcontract bid to U.S. Estimate

0.9962

1.0065

1.0062

Exchange rate on arrival compared to table 1.2

+0.40%

-1.1%

-0.05%

The U.S. estimate for the reactor assembly is 197.5 million. In which country would the vessel be built and what is the cost in U.S. currency? What is the dollar penalty if the next-lower estimate country is selected? Where does nonnumerical judgement enter the decision process for the selection of the country in which to fabricate the reactor?

 

British pound sterling

Canada Dollar

China Renminbi

European Union Euro

Hong Kong Dollar

Japan Yen

Mexico Peso

Russia Ruble

Saudi Arabia Riyal

Spot

1.6593

0.6812

0.1208

1.0884

0.1291

0.007095

0.1116

0.1604

0.2666

One Year

1.6149

0.7034

0.118

1.1139

0.1106

0.009921

0.1093

0.1503

0.2718

Figure 1.2

 

SOLUTION

Value of subcontract bid in home countries = U.S. estimate for the reactor * Ratio of subcontract bid to U.S. Estimate

In Germany = $197.5(in million) * 0.9962 = €196.75 (in million)

In England = $197.5(in million) * 1.0065 = £198.78 (in million)

In Canada = $197.5(in million) * 1.0062 = $198.72 Canadian (in million)

 

Exchange Rate at the time of scheduled arrival = Exchange rate at spot + Exchange rate differential at delivery

Exchange rate differential = Exchange Rate at spot * %change in rate at scheduled arival

Exchange Rate at scheduled time of arrival;

For Germany = 1.0884 + (0.4% * 1.0884) = 1.0928

For England = 1.6593 + (-1.1% * 1.6593) = 1.6411

For Canada = 0.6812 + (-0.05% * 0.6812) = 0.6809

 

Cost of Building Vessel in USD = Value of subcontract bid in home countries * Exchange Rate at the time of scheduled arrival

 In Germany = 196.75 (in million) * 1.0928 = $215.01 USD (in million)

In England = 198.78 (in million) * 1.6411 =$326.22 USD (in million)

In Canada = 198.72 (in million) * 0.6809 = $135.31 USD (in million)

 

N.B: The above calculations are summarized in the table below;

 

Particulars

Germany

England

Canada

Value of subcontract bid in home currency (in million) (1)

$197.5 * 0.9962 = €196.75

$197.5 * 1.0065 = £198.78

$197.5 * 1.0062 = $198.72 Canadian

Exchange rate at the time of scheduled arrival of reactor (2)

1.0884 + (0.0040 * 1.0884) = 1.0928

1.6593 – (0.0110 * 1.6593) = 1.6411

0.6812 – (0.0005 * 0.6812) = 0.6809

Value of bid in million USD (1) × (2)

215.01

326.22

135.31

 

The vessel would be built in Canada, it has the least quoted value of bid at 135.31 million USD.

The next lower estimate country is Germany with the value of bid at 215.01 million USD. The dollar penalty if Germany is preferred = (215.01 – 135.31) in million = 79.7 million USD.

There are several non quantitative factors which could affect the decision of selection of country in which to fabricate the reactor vessel. The political climate in the source country and thw2he ruling government’s take on such a project is one of them, the political and diplomatic relations between the source country and destination country i.e. Saudi Arabia would also matter, the government policy, the economic and political stability in the source nation would indirectly impact the balance of payments position of the country and affect its home currency, trade related tariff and non-tariff barriers and the position of source country in international trade arena would also affect this transaction, and last but not the least, the quality standards and performance report of the reactor vessel would play an instrumental role in selection of the country as each country would have its own competitive advantage over others in fabricating the vessel.