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A U.S. importer has agreed to purchase 500 bottles of cachaça (a type of rum) from...

A U.S. importer has agreed to purchase 500 bottles of cachaça (a type of rum) from Brazil at a price of 75 BRL (Brazilian reals) each. The cachaça will take five months to bottle, label, and ship, and payment is due before the wine is shipped.

  1. (5 pts)Assume the spot rate is 3.756 BRL is equal to 1 USD. What is the total price in USD to the importer if the spot rate remains unchanged?
  1. (5 pts)What is the cost to the US importer for the cachaça in question 5 if the spot rate changes to 3.458 BRL to 1 USD?
  1. (2 pts)If the spot rate changes on the BRL as indicated in questions 3 and 4, did the USD strengthen or weaken relative to the BRL?

Solutions

Expert Solution

Answer:-

If spot rate is 3.756 BRL

Total Price (in BRL) = 500 bottles x 75 BRL

                                = 500 x 75

                                = BRL 37,500

Price in USD = 37,500/Spot Rate

                     = 37,500/3.756

                    = $ 9984

If spot rate changes to 3.458 BRL

Total Price (in BRL) = 500 bottles x 75 BRL

                                = 500 x 75

                                = BRL 37,500

Price in USD = 37,500/Spot Rate

                     = 37,500/3.458

                    = $ 10844

Answer to third part:- Due to lack of information It is presumed that rate has changed from 3.756 BRL to 3.458 BRL

If the sport rate has changed from 3.756 BRL to 3.458 BRL per USD then it means that USD has weakened as compared to BRL as earlier One US$ was equal to 3.756 BRL but now One BRL is equal to only 3.458 BRL.

As a result, it is evident in the above calculations also that with old exchange rate, importer has to pay only $ 9984 but after change in spot rate importer has to pay $ 10844 which indicates that USD has weakened as copmpared toi BRL.

jeff jeffy answered 4 weeks ago
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