Equipment Installations Ltd., (EIL) are a UK-based company who install robotic production line equipment for specialist industries. Strategically, the company sources from ROBOCO Inc. in the United States. Deliveries from the US can take from 6 to12 weeks depending upon available production capacity. EIL quote a 26-week lead time to include for the variable supply costs and to cover installation. EIL are never late on commissioning the equipment; 40% of the sales are to EURO zone countries who insist on Euro pricing. A typical installation selling for 1m would include $800,000 of equipment and 300,000 labour. With exchange rates of $1.6638/ and 1.1025/ the economics are as follows:

	Original currency	Exchange rate originally	Sterling equivalent
Sales	1,000,000	1.1025	907,029
Cost of sales
Equipment	$800,000	1.6638	480,827
Labour	300,000	1	300,000
Profit/(Loss)		13.9%	126,202

However, only six months later the deal is not viable as can be seen in the table below:

	Original currency	Exchange rate 6 months later	Sterling equivalent
Sales	1,000,000	1.214	823,723
Cost of sales
Equipment	$800,000	1.4896	537,057
Labour	300,000	1	300,000
Profit/(Loss)		(1.6%)	(13,334)

We have two questions for this case. For each of them, even if you choose only one wrong answer, all the marks of the question will be deducted.

Identify a strategy for each of the equipment and labour cost elements of the transaction that will mitigate the risk of loss.

Select one or more:

a.

Advise customers of $ value and link to current value

b.

Consider a one-year fixed price with ROBOCO Inc. for equipment

c.

Pass risk to customer for variances in movement against $

d.

Link labour cost to currency relationship between and at any time

e.

If customers are not prepared to accept this financial risk, quote fixed price assuming high variance in exchange rate.