Fashion T-Shirt Co. Fashion T-Shirt Co. is a T-shirt company based in Manchester, U.K., that imports cotton yarn from Mayada Expo, its life-long supplier, based in Cairo, Egypt. The agreement is for Fashion T-Shirt Co. to make its payment in Egyptian pounds (EGP). When the EGP was devalued in 2003, its value massively declined to EGP 8.8/GBP in early 2003. Financial forecasts gave a negative outlook with expectations of further depreciation of the value of the Egyptian pound. Both the Egyptian exporter and the British importer decided to sign a six-month currency risk-sharing agreement that fixed a functional rate of exchange within the range of EGP 8.5/GBP and EGP 9.5/GBP. Further, their agreement provided that if the exchange rate falls outside this range on the date of an invoice, both parties will share the difference equally. Both parties also agreed that this agreement would hold for only six months, after which it would be re-negotiated. During the following six months the Manchester-based T-shirt firm signed a contract to import cotton yarn from the Egyptian firm for EGP9,000,000 or GBP1,000,000 at the current spot rate of EGP 9/GBP during the next six months.

a. If the exchange rate rises to EGP11/GBP, what is the GBP import cost during these six months to T-Shirt Co.?

b. What will be the Egyptian pound export sales of Mayada Expo to T-Shirt Co. at this EGP11/GBP new exchange rate?