20 20 Assumptions Invoice Price of a TV Set at a Dutch TV Manufacturer Spot Exchange Rate (AS/E) Risk Sharing Band, Percentage Sales to Australian Distributors a. What are the outside ranges? (Initial Spot Rate + or - 10 %) b. Cost to the Australian Distributor for 100 TV Sets New Current Spot Rate (AS/) - Is this within the band? Costs of 100 TV Sets at this Exchange Rate (AS/E) Receipts to the Dutch TV Exporter in Euros (Within the band the Dutch Manufacturer receives 1,000 per TV set) c. Cost to the Australian Distributor for 100 TV Sets New Current Spot Rate (AS/E) Is this within the band? Costs of 100 TV Sets at this Exchange Rate (AS/E) (Equal Risk Sharing) Values 1,000 1.5000 10.00% Lower Band (For the Australian Importer) Upper Band (For the Australian Importer) 1.65 1.35 1.60 Yes 100 1,000* 1.60 AS/E= A$ 160,000 100* 1,000= 100,000 100* 1,000* 1.75 No AS/E (1.65+ (1.75-1.65))= 2 = 100* 1,000*1.70 AS/ = AS 170,000 This is more advantageous to the Australian importer since purchasing those TV sets at the current exchange rate would result in 100* 1,000*1.75 AS/= =AS 175,000 Receipts to the Dutch TV Exporter in Euros d. Cost to the Australian Distributor for 100 TV Sets = AS 170,000/ 1.75 AS/E= = 97,142.86 (If Australian dollar significantly depreciates relative to euro falling outside the bottom range for the Australian importer, the Dutch exporter takes some of the burden of the Australian importer by absorbing some of the exchange rate fluctuation like offering discount). New Current Spot Rate (AS/E) Is this within the band? Costs of 100 TV Sets at this Exchange Rate (AS/E) (Equal Risk Sharing) Receipts to the Dutch TV Exporter in Euros 100* 1,000* 1.25 No AS/E (1.35 (1.35-1.25))= 2 = 100* 1,000*1.30 AS/E = AS 130,000 This is more advantageous to the Dutch manufacturer since selling those TV sets at the current exchange rate would result in 100 1,000*1.25 AS/E= =AS 125,000 = AS 130,000/ 1.25 AS/= = 104,000 (If Australian dollar significantly appreciates relative to euro falling outside the top range for the Australian importer, the Australian importer takes some of the burden of the Dutch exporter by absorbing some of the exchange rate fluctuation like offering premium).