Question

Porsche is expected to sell approximately 60,000 cars in the U.S. in 2019. I'll let you estimate an average selling price across Porsche models. For this example, let's assume that all the sales happen in December of 2019. Also, assume that Porsche has fully hedges their U.S. dollar exposure (based on predicted sales) using futures or forward contracts at a rate of $1.10 per Euro. What happens in the following situations:

a. the Dollar/Euro exchange rate remains unchanged and sales are as predicted

b. the Euro rises against the Dollar and the exchange rate moves to $1.00 per Euro. Sales are as predicted.

c. the Euro falls against the Dollar and the exchange rate moves to $1.25 per Euro. Sales are as predicted.

d. the Euro rises against the Dollar and the exchange rate moves to $1.00 per Euro. Sales are 20% higher than expected.

e. the Euro rises against the Dollar and the exchange rate moves to $1.00 per Euro. Sales are 20% lower than expected.

Be specific in your answers. Where does Porsche lose money, and how much? Where does Porsche make money and how much? What is the overall effect on Porsche's income in their home currency? FYI, you can make the Euro currency symbol in Word by using CRTL + ALT + E.  

Answer 1

B)

C)

D)