Question

1- Suppose that Nevada Co., a US-based MNC, makes regular, monthly purchases of materials from a German supplier named Spicurity. These regular payments are typically in the amount of 300,000 euros. Last month the exchange rate was $1.93 per euro. Nevada Co. only has cash reserves in dollars, while Spicurity only has cash reserves in euros. Suppose both companies use the same bank.

In order to conduct this transaction last month, Nevada Co. required a. $_____ to pay for the materials. Thus, the bank handling the transaction reduced Nevada’s account by this amount, denominated in b. __________( euros OR dollars). The bank then converted this amount to c. ___________ d. ________________( euros OR dollars). and credited it to Spicurity’s account.

2- Suppose that Nevada Co., a US-based MNC, makes regular, monthly purchases of materials from a German supplier named Spicurity. These regular payments are typically in the amount of 300,000 euros. Last month the exchange rate was $1.93 per euro. Nevada Co. only has cash reserves in dollars, while Spicurity only has cash reserves in euros. Suppose both companies use the same bank.

In order to conduct this transaction last month, Nevada Co. required a. $________ to pay for the materials. Thus, the bank handling the transaction reduced Nevada’s account by this amount, denominated in b. ___________( euros OR dollars). . The bank then converted this amount to c. ___________ d. ___________( euros OR dollars).   and credited it to Spicurity’s account.

Answer 1

1. In order to conduct this transaction last month, Nevada Co. required a. $579000 (300000*1.93) to pay for the materials. Thus, the bank handling the transaction reduced Nevada’s account by this amount, denominated in b. Dollars. The bank then converted this amount to c. 300000 d. Euros  and credited it to Spicurity’s account.

2. In order to conduct this transaction last month, Nevada Co. required a. $579000 (300000*1.93) to pay for the materials. Thus, the bank handling the transaction reduced Nevada’s account by this amount, denominated in b. Dollars. The bank then converted this amount to c. 300000 d. Euros  and credited it to Spicurity’s account.