Question

Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.5126 S$/US$. You have just placed an order for 27,000 motherboards at a cost to you of 231.35 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $162 each.

a.	Calculate your profit if the exchange rates stay the same over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	Calculate your profit if the exchange rate rises by 12 percent over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	Calculate your profit if the exchange rate falls by 12 percent over the next 90 days. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	What is the break-even exchange rate? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
e.	What percentage decrease does this represent in terms of the Singapore dollar versus the U.S. dollar? (Enter your answer as a positive value. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a.

If the exchange rate stay same over the period, then Cost of each motherboard expressed in dollars will be 231.35/1.5126= 152.9486. So, profit= 27000*(162-152.9486)= 244388.73

b.

If the exchange rate rises by 12%, new exchange rate will be 1.5126*1.12= 1.694112. Then cost of each motherboard is 231.35/1.694112= 136.5612. So, profit= 27000*(162-136.5612)= 686847.08

c.

If the exchage rate falls by 12%, new exchange rate will be 1.5126*0.88= 1.331088. Then cost of each motherboard is 231.35/1.331088= 173.8052. As it is more than selling cost, there is loss instead of profit. So, Loss= 27000*(173.8052-162)= 318740.07 So, a loss of 318740.07 or a profit of -318740.07

d.

For breakeven, cost should be equal to selling price of 162. So, 231.35/New exchage rate= 162. New exchage rate= 1.428086. So, break-even exchange rate is 1.4281

e.

Exchage rate need to decrease from 1.5126 to 1.4281. So, percentage decrease= (1.5126-1.4281)/1.5126= 0.084514/1.5126= 5.59%