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In: Finance

You recently completed transactions in Germany and Great Britain and the profits from these transactions were...

You recently completed transactions in Germany and Great Britain and the profits from these transactions were €1,000,000 and £2,000,000, respectively. How many U.S. dollars did you receive if the bid and the ask for the Pound Sterling were $1.21/£ and $1.23/£, respectively and the bid and the ask were $1.07/€ and $1.09/€, respectively?

Solutions

Expert Solution

Solution :

(a)As per the information given in the question we have

Profits from transaction in Germany = € 1,000,000

Bid rate = $1.07/€

Ask rate = $1.09/€

Since we have to sell the Euros to receive dollars the Bid rate will apply.

The Bid Rate is 1 Euro = $ 1.07

Thus the number of U.S. Dollars that will be received on conversion

= € 1,000,000 * $ 1.07

= $ 1,070,000

(b) As per the information given in the question we have

Profits from transaction in Great Britain = £ 2,000,000

Bid rate = $1.21/£

Ask rate = $1.23/£

Since we have to sell the Pounds to receive dollars the Bid rate will apply.

The Bid Rate is 1 Pound sterling = $ 1.21

Thus the number of U.S. Dollars that will be received on conversion

= £ 2,000,000 * $ 1.21

= $ 2,420,000

The U.S. Dollars received from the profitable transactions in Germany = $ 1,070,000

The U.S. Dollars received from the profitable transactions in Great Britain = $ 2,420,000

Total U.S. Dollars received from both Germany and Great Britain = $ 1,070,000 + $ 2,420,000

= $ 3,490,000

jeff jeffy answered 2 days ago
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