The exchange rate of a currency is the price paid in one country's currency for the...

The exchange rate of a currency is the price paid in one country's currency for the currency of another country. If a company in the United States sources parts from a company in Europe, dollars will need to be converted to euros to pay for the parts. This need to convert currency introduces uncertainty as to the actual cost of the parts, since the exchange rate at the time the price is quoted may be different from the rate when payment is made. If the value of the euro appreciates, it will take more dollars to make payment in euros. If the value of the euro depreciates, it will take fewer dollars.

This exercise is designed to give you practice with currency exchange and help you better understand fluctuations in the exchange rates in CountryManager.

COUNTRYMANAGER

In the table below, given the value of 1 USD in each of the countries, fill in the exchange rates for all the other combinations.

	USD	ARS	BRL	CNY	YEN
USD (US dollar)	—	8.1301	2.1529	6.4809	80.2568
ARS (Argentine peso)		—
BRL (Brazilian real)			—
CNY (Chinese yuan)				—
YEN (Japanese yen)					—

An Argentine retailer has ordered BRL 100,000 worth of product from a manufacturer in Brazil. Using the rates in the table in question 1, how much will the order cost in Argentine pesos?

A US firm has a subsidiary in Japan which earned YEN 1.5 billion last year. How much is that in US dollars at the rate of exchange in the table?

If the subsidiary in Japan increases earnings to YEN 1.7 billion, and the exchange rate rises to YEN/USD 92.1749, what are the earnings in USD? What if the rate goes down to 71.3687?

In CountryManager, you do not have any way of mitigating the risk of exchange rate fluctuations. What can an international business do in the real world to reduce the risk?

Solutions

Expert Solution

keosha answered 10 months ago

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