DeMagistris Fashion Company, based in New York City, imports leather coats from Acuna Leather Goods, a reliable and longtime supplier, based in Argentina. Payment is in Argentine pesos. Since both DeMagistris and Acuna wanted to continue their longtime relationship they agreed on a risk-sharing arrangement. Assume that the exchange rate at the time of the agreement is Ps 50/$ and Ps 25,000 per jacket and they set the base rate at Ps50/$ with a neutral zone of +/- 5%. If the spot rate is within the neutral zone then there is no risk-sharing and payment and invoicing at Ps 25,000 takes place at the actual spot rate. If the actual exchange rate falls outside the neutral zone, then the effective rate is set between the actual spot and the end of the neutral zone.

a) What will be the range of the neutral zone?

b) If the exchange rate changes to Ps65/$, what will be the dollar cost of a leather coat to DeMagistris?

c) At Ps65/$, what will Acuna Leather Goods receive in pesos per leather coat?