Delta Kayaks, USA, distributes its kayaks internationally through independent boat and sporting goods stores. One such example is Western Mountain Sports based in Calgary, which sells Delta Kayaks in Canadian dollars to retail customers. Stores such as Western Mountain sports are unable to carry all the foreign exchange risk and would not sell Delta Kayaks unless Delta could share some of the foreign exchange risk.

Delta and Western Mountain have agreed to a risk sharing clause in their contract. As long as the actual exchange rate is within +/- 3% of the base rate for the year (this years base rate is 1.2000 CAD/USD), Delta agrees to price all contracts to Western Mountain Sports at the base rate. However, if the spot rate at the time of shipment falls outside +/- 3% of the fixed rate boundary, Delta will share equally (i.e. 50/50) the difference between the actual spot rate and the fixed rate boundary up to +/- 7% from the base rate. Outside of the +/- 7% range, there is no currency clause.

a. Please provide the following 5 rates CAD/USD: sharing zone upper boundary, fixed rate upper boundary, central or base rate, fixed rate lower boundary, and risk sharing zone lower boundary. 4 points.

b. Delta ships an order with an invoice of $20,000 USD and the spot exchange rate is 1.15 CAD/USD, what is the Canadian dollar cost to the Canadian retailer? 2 points.

c. If Delta ships an order with an invoice of $20,000 USD and the spot exchange rate is CAD 0.98/USD what is the Canadian dollar cost to the Canadian retailer? 2 points.

d. If Delta ships an order with an invoice of $20,000 USD and the spot exchange rate is CAD 1.26/USD what is the Canadian dollar cost to the Canadian retailer? 2 points.