Question

In: Finance

4. Create a memo in Word. Comment on the trend shown in question 1 above. During the...

4. Create a memo in Word. Comment on the trend shown in question 1 above. During the first 5 days, was the euro rising or falling? And during those 10 days?

5. Most of your exports to the US belong to the model 600 RTM. The experience shows that, if the price of this product rises over 78000 dollars, the exported units will be reduced. If this product is priced in euros, and assuming the trend shown in question 1 continues, what would be the consequences for your company’s exports?

Q1. In the table below are the euro-dollar exchange rates for the first ten days of November 2019. The data shows dollar per euro. Draw a line chart that shows the evolution of the euro relative to the dollar. Add a trendline.

USD

10/11/2019 1,0385

09/11/2019 1,0443

08/11/2019 1,0262

07/11/2019 1,0481

06/11/2019 1,0385

05/11/2019 1,0566

04/11/2019 1,0384

03/11/2019 1,0301

02/11/2019 1,0139

01/11/2019 1,0019

Expert Solution

There is no question 1 to refer here. However, based on the FX rate given in the table to this questions, my submission is as follows:

A) Euro was rising in the first five days as evidenced from the line graph as well. However when we look all 10 days together EUR turned more volatile than first five days. EUR depreciated on Nov 6 but back again to appreciation on Nov 7 and then again depreciated on Nov 8

Purchasing power of EUR has increased from 1 EUR equals to 1.0019 on Nov 1 to 1 EUR equals to 1.0566 dollar on Nov.5th.
Appreciation in Euro is a bad news for the exporter sitting in US. He will received less amount of USD when converting same amount fo EUR.
Appreciation is EUR is good news for the importer in US. Now he has to shell out less amount to USD to pay equivalent amount in EUR.

B) If the price of the product rises this will curtail export to some extent. This is beneficial also from the export point of view. Since EUR is appreciating day by day during first five days before turning more volatile, it will bring less amount of dollar value to the exporter in USA when converting equivalent amount of EUR. Exporter can take this advantage and sell the product in domestic market with any FX impact at higher price and gain profit.

C) Line chart of USD / EUR trend

jeff jeffy answered 1 year ago

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