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MacLoren Automotive. MacLoren Automotive manufactures British sports cars, a number of which are exported to New Zealand for payment in pounds sterling. The distributor sells
MacLoren Automotive. MacLoren Automotive manufactures British sports cars, a number of which are exported to New Zealand for payment in pounds sterling. The distributor sells the sports cars
in New Zealand for New Zealand dollars. The New Zealand distributor is unable to carry all of the foreign exchange risk, and would not sell MacLoren models unless MacLoren could share some of
the foreign exchange risk. MacLoren has agreed that sales for a given model year will initially be priced at a "base" spot rate between the New Zealand dollar and pound sterling set to be the
spot midrate at the beginning of that model year. As long as the actual exchange rate is within of that base rate, payment will be made in pounds sterling. That is the New Zealand distributor
assumes all foreign exchange risk. However, if the spot rate at time of shipment falls outside of this range, MacLoren will share equally ie the difference between the actual spot rate
and the base rate. For the current model year the base rate is $
a What are the outside ranges within which the New Zealand importer must pay at the then current spot rate?
b If MacLoren ships sports cars to the New Zealand distributor at a time when the spot exchange rate is $ and each car has an invoice cost what will be the cost to the
distributor in New Zealand dollars? How many pounds will MacLoren receive, and how does this compare with MacLoren's expected sales receipt of per car?
c If MacLoren Automotive ships the same cars to New Zealand at a time when the spot exchange rate is $ how many New Zealand dollars will the distributor pay? How many
pounds will MacLoren Automotive receive?
d Does a risksharing agreement such as this one shift the currency exposure from one party of the transaction to the other?
e Why is such a risksharing agreement of benefit to MacLoren? Why is it of benefit to the New Zealand distributor?
a What is the upper band of the exchange rate range?
NZ$ Round to four decimal places.
Can you please show how to solve step by step for each letter? Thank you.
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