Question

A U.S. manufacturer sells an item for $1,000 to a French buyer and quotes the payment to be in U.S. dollars this year. What is the current exchange rate (2/20/19), and what was the exchange rate last year (2/20/18) on the same day? How does this transcation affect the U.S seller and the French buyer? (Illustrate by creating a chart) what would the buyer pay and the seller receive in both cases?

Answer 1

The current exchange rate between US and France as of today (2/20/19) is :

                                                            1 FRF = 0.172 USD

                                                           1 USD = 5.781 FRF

The exchange rate between US and France as of ne year ago (2/20/18) was :

                                                            1 FRF = 0.193 USD

                                                           1 USD = 5.192 FRF

	USA	FRANCE
2/20/19	US will export an item of $1000	France will receive Franc 5,781
2/20/18	US will export an item of $1000	France will receive Franc 5,192

This transaction does not affect the US seller for this case only, as it will any way export an item of $1000, however, for France, the increase in the exchange rate means it will now receive higher Franc values for the same value of $1000. This is a case of benefit for the Government of France. However, if the opposite happens, then France will lose, as if Franc needs to send an item of $1000, it will actually have to export an item of worth more in its currency so as to make up for the depreciation of its currency.