International Finance

Yohe Telecommunications is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Maitland, Florida, Yohe usually must buy its raw materials in several different foreign countries, and several different foreign currencies. The matter is complicated even further by the fact that Yohe usually sells its products in other different foreign countries. One product in particular, the SY$-20$ radio transmitter draws its principal components Component X$,$ Component Y$,$ and Component Z from Germany, Mexico, and England, respectively. Specifically, Component X costs $84$ euros, Component Y costs $650$ Mexican pesos, and Component Z costs $105$ British pounds. The largest market for the SY$-20$ is in Japan, where it sells for $38,000$ Japanese yen. Naturally, Yohe is intimately concerned with economic conditions that could adversely affect dollar exchange rates. You will find Tables $1,2,$ and $3$ useful for this problem.

TABLE $1$

Exchange rates of select major currencies, relative to the U$.$S$.$ dollar

Direct Indirect

Quotations Quotations Note: The pound and euro are quoted as direct quotations. Other currencies are quoted as indirect quotations.

British pound $1\mathrm{.}90690\mathrm{.}5244$

Mexican peso $0\mathrm{.}091910\mathrm{.}8778$

Euro $1\mathrm{.}28410\mathrm{.}7788$

Japanese yen $0\mathrm{.}0087115\mathrm{.}1145$

TABLE $2$

Key Currency Cross$-$Exchange Rates b

Dollar Euro Pound Peso Yen

Japan $115\mathrm{.}11450147\mathrm{.}8185219\mathrm{.}511810\mathrm{.}5825....$

Mexico $10\mathrm{.}8778013\mathrm{.}968220\mathrm{.}7429....0\mathrm{.}0945$

United Kingdom $0\mathrm{.}524400\mathrm{.}6734....0\mathrm{.}04820\mathrm{.}0046$

Euro $0\mathrm{.}77880....1\mathrm{.}48500\mathrm{.}07160\mathrm{.}0068$

United States $....1\mathrm{.}28411\mathrm{.}90690\mathrm{.}09190\mathrm{.}0087$

a$.$ How much, in dollars, does it cost for Yohe to produce the SY$-20?$ What is the dollar sale price of the SY$-20?$

Input Data

Cost of component X $($in euros $84$

Cost of component Y $($in pesos$)650$

Cost of component Z $($in pounds$)105$

Sale price of the SY$-20($in yen$)38,000$

We will convert the cost of each component to dollars, and find the total cost of the SY$-20.$ We will do the same to find the

dollar sale price.

Component X

Cost of X in $ $=$ Cost in euro x Direct spot exchange rate $($$$/$euro$)$

Cost of X in $ $=$ x

Cost of X in $ $=$

Component Y

Cost of Y in $ $=$ Cost in pesos x Direct spot exchange rate $($$$/$peso$)$

Cost of Y in $ $=$ x

Cost of Y in $ $=$

Component Z

Cost of Z in $ $=$ Cost in pounds x Direct spot exchange rate $($$$/$pound$)$

Cost of Z in $ $=$ x

Cost of Z in $ $=$

TOTAL COST OF THE SY$-20($in dollars$)=$

Revenue from sale of the SY$-20$

Sale price $($in $$)=$ Price in yen x Direct spot exchange rate $($$$/$yen$)$

Sale price $($in $$)=$ x

Sale price $($in $$)=$

SY$-20$ SALES PRICE $($in dollars$)=$

b$.$ What is the dollar profit that Yohe makes on the sale of the SY$-20?$ What is the percentage profit?

The dollar profit from the sale of the SY$-20$ is simply the sales revenue minus the total cost.

Dollar profit $=$ Sales price $-$ Total cost

Dollar profit $=-$

Dollar profit $=$

The percentage profit is determined as the dollar profit divided by the total cost.

$\%$ profit $=$ $ profit $/$ Total cost

$\%$ profit $=/$

$\%$ profit $=$

c$.$ If the U$.$S$.$ dollar were to weaken by $10\%$ against all foreign currencies, what would the dollar and percentage profits be

for the SY$-20?$

Since there is a weakening of the dollar, a dollar buys fewer units of foreign currency and a unit of foreign currency buys more dollars. Therefore, if the dollar were to weaken by $10\%$ against all currencies, that could be expressed by multiplying the direct quotations of foreign exchange rates by $(1+\%$ change$).$

Change in dollar strength against all currencies

We will reproduce the table from the top of the spreadsheet, but we will add a column for the new exchange rates.

Direct Indirect New Direct

Quotations Quotations Quotations

British pound $1\mathrm{.}906900\mathrm{.}52440$

Mexican peso $0\mathrm{.}0919010\mathrm{.}87780$

Euro $1\mathrm{.}284100\mathrm{.}77880$

Japanese yen $0\mathrm{.}00870115\mathrm{.}11450$

Now, we will recompute the component costs and sales price of the SY$-20.$

Component X

Cost of X in $ $=$ Cost in euros x Direct spot exchange rate $$/$euro$)$

Cost of X in $ $=$ x

New cost