Question
In: Finance
Nevada Co., a US-based MNC, makes regular, monthly purchases of materials from a German supplier named...
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.
Suppose that this month the exchange rate has decreased to $1.87 and that it is time for Nevada Co. to makes its monthly purchase of materials from Spicurity.
a. In order to conduct this transaction this month, Nevada Co. now requires $ ________to pay for the materials. Thus, the bank handling the transaction must reduce Nevada’s account by this amount, denominated in _________( euros OR dollars) . The bank must then convert this amount to ___________ _________( euros OR dollars) and credit it to Spicurity’s account.
b. True or False: The bank has acted as a foreign exchange dealer in this transaction.
True
False
Solutions
Expert Solution
Dollars required to pay = Amount in Euro*Exchange rate
= 300,000*1.87
= $561,000
Nevada's account in Dollars
Convert to Euros
b.True, since it has converted Dollars into Euros
jeff jeffy answered 2 years agoRelated Solutions
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Nevada Co. only has cash reserves in dollars, while Spicurity only
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