International Finance Cash flows in various parts of a multinational corporate system will be denominated in different currencies. Hence, exchange rates must be included in all financial analyses. Foreign exchange rate quotations can be found in The Wall Street Journal and in other leading print publications and on websites. Exchange rates are given in two different ways: (1) Direct Quotation the home currency price of one unit of the foreign currency and (2) Indirect Quotation the foreign currency price of one unit of the home currency. If the foreign exchange markets are in equilibrium, which is usually the case for the major traded currencies, the two quotations must be reciprocals of each other. Example, Canadian Dollar and US Dollar: Canadian Dollar 1/0.9814 = 1.0190 1/1.0190 = 0.9814 Suppose, though, that a German executive is flying to Tokyo on business. The exchange rate in which he or she is interested is not euros or yen per dollar rather, the issue is how many yen can be purchased with a euro. This is called a cross rate exchange rate between any two currencies. Example, spot rate for Euro is 0.7511/$l spot rate for Yen is 96.02/$1 For the German national, the cross rates are found as follows: Euro / $ Yen / $ Euro / Yen exchange rate = or Yen / Euro exchange rate = Yen / $ Euro / $ Problem:

Monblanc Trading Company imports French cheeses for distribution in the United States. On July 1, the company purchased cheese costing 100,000 Euro. Payment is due in Euro on October 1. The spot rate on July 1 was $1.20 per Euro, and on October 1, it was $1.25 per Euro. Determine the following: 1. The companys liabilities in US Dollars prior to payment 2. The amount of payment in US Dollars on October 1 3. The exchange gain or loss Briefly discuss implications.