A U.S. company sells merchandise today to a British firm for £210,000. The current exchange rate is $1.35/£, the ac

A U.S. company sells merchandise today to a British firm for £210,000. The current exchange rate is $1.35/£, the account is payable in six months, and the company chooses to disregard any hedging techniques designed to reduce the risk of changes in the exchange rate. If the exchange rate changes to $1.39/£, the U.S. company will realize a of

A) loss; €8,400

B) gain; €8,400

C) loss; $8,400

D) gain; $8,400

Expert Solution

The option (d) is right option.

Explanation:

The company has British pound receivables. It can be seen that the British pound has appreciated against the American Dollars and hence the company will be having a gain.

The total gain of company= (1.49-1.35)210000)= $8400.

Hence, Correct answer is option (D) gain, $ 8400.

The option (d) is right option.

Junaid answered 1 year ago

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