Question
Elan Pharmaceuticals, a U.S.-based multinational pharmaceutical company, is evaluating an export sale of its cholesterol-reduction drug with a prospective Indonesian distributor. The purchase would be
Elan Pharmaceuticals, a U.S.-based multinational pharmaceutical company, is evaluating an export sale of its cholesterol-reduction drug with a prospective Indonesian distributor. The purchase would be for 3657438 Indonesian rupiah (Rp). Although not a big sale by company standards, company policy dictates that sales must be settled for at least a minimum gross margin, in this case, a cash settlement of $168,000. The current spot rate is Rp9,450/$. The current 90-day forward rate is Rp9,950/$. Although this rate appeared unattractive, Elan had to contact several major banks before even finding a forward quote on the rupiah. The consensus of currency forecasters at the moment, however, is that the rupiah will continue to strengthen, possibly rising to Rp10,200/$ over the coming 90 to 120 days. How much in U.S. dollars will Elan receive in 90 days without a hedge if the expected spot rate in 90 days is assumed to be Rp9,650/$? Round to the nearest whole number.
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