Question

Problem 2-13 (algorithmic)

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Barcelona Machine Tools. Oriol​ D'ez Miguel​ S.R.L., a manufacturer of heavy duty machine tools near​ Barcelona, ships an order to a buyer in Jordan. The purchase price is

€422,000. Jordan imposes a 14% import duty on all products purchased from the European Union. The Jordanian importer then​ re-exports the product to a Saudi Arabian​ importer, but only after imposing its own resale fee of 28%.

Given the following spot exchange rates on April​ 11, 2010, what is the total cost to the Saudi Arabian importer in Saudi Arabian​ riyal, and what is the U.S. dollar equivalent of that​ price?  ​(Click on the

  icon to import the table into a​ spreadsheet.)

Currency Crossrate	Spot Rate
Jordanian dinar​ (JD) per euro ​(€​)	0.963
Jordanian dinar​ (JD) per U.S. dollar​ ($)	0.705
Saudi Arabian riyal​ (SRI) per U.S. dollar​ ($)	3.747

The spot​ rate, Saudi Arabian riyal per Jordanian dinar is SRI

__​/JD.

​(Round to five decimal​ places.)

Answer 1

First, we will calculate the cost to the buyer in Jordan in Jordanian Dinar:

1 Euro = 0.963 JD

Therefore, 422,000 Euro * 0.963 = 406,386 JD is the initial purchase price for the buyer in Jordan.

Adding the import duty of 14%, the Total Cost to the Jordan buyer = JD 406,386 * 1.14 =  JD 463,280.

Now, the Jordan buyer re-exports the products by adding 28% resale fee, the total of which will be -

JD 463,280 (cost to Jordan buyer) * 1.28 (resale fee) = JD 592,998 = Amount in JD that will be the cost to the Saudi Arabian buyer ------ (A)

Now, we will calculate the exchange rate of SRI/JD on the basis of cross rates of JD, USD, SRI -

1 USD = 0.705 JD

1 USD = 3.747 SRI

Therefore, 0.705 JD = 3.747 SRI

Therefore, 1 JD = 3.747 / 0.705 SRI

Therefore, 1 JD = 5.315 SRI ------- (B)

Answer to sub part 1 : Total Cost to Saudi Arabian importer in SRI :

Total cost to Saudi Arabian importer in JD (Calcluated as (A) above) = JD 592,998

Therefore, total cost to Saudi Importer in SRI (using the SRI/JD exchange rate caclulated as (B) above) = 592,998 * 5.315 = SRI 3,151,784

Answer to sub part 2 : US dollar equivalent of the total cost price of Saudi Arabian importer:

1 USD = 3.747 SRI

Therefore, SRI 3,151,784 = ? USD

= 3,151,784 / 3.747

= 841,149 USD