International Services entered into a debt covenant requiring it to maintain a current ratio of at least 1.5:1. The company€™s condensed balance sheet as of December 31 follows:

International€™s primary customer is Buckingham Ltd., a company located in Britain. As of December 31, Buckingham owed International 40,000 British pounds. The exchange rate as of December 31 between U.S. dollars and British pounds was $1.70 per pound.

REQUIRED:
a. What dollar amount of International€™s current assets on the balance sheet is associated with the receivable owed by Buckingham?
b. Assume that all account balances remain the same over the next year. Below what exchange rate (U.S. dollar per British pound) would International be in violation of the debt covenant?
c. Assume that $1,700 of accounts payable on the balance sheet represents a debt of 1,000 British pounds to a British bank. Below what exchange rate would International be in violation of the debt covenant now? Consider both the receivable and the payable.
d. Describe how International could hedge to reduce the risk of being in violation of the debt covenant.

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Liabilities and Shareholders' Equity Current liabilities Assets Current assets Noncurrent assets $ 80,000 $ 50,000 Long-term liabilities 200,000 100,000 Shareholders' equity Total liabilities and shareholders' equity 130,000 Total assets $280,000 $280,000