2) Euros Or Dollars

4) Euros Or Dollars

Suppose that Nevada Co., a US-based MNC, makes regular, monthly purchases of materials from a German supplier named Spicurity. These regular payments are typically in the amount of 410,000 euros. Last month the exchange rate was $1.35 per euro. Nevada Co, only has cash reserves in dollars, while Spicurity only has cash reserves in euros. Suppose both companies use the same bank. In order to conduct this transaction last month, Nevada Co, required $ transaction reduced Nevada's account by this amount, denominated in and credited it to Spicurity's account. to pay for the materials. Thus, the bank handling the The bank then converted this amount to