Multinational Business Fiance

Fourteenth Edition

David K. Eiteman

Chapter 12

2. Acua Leather Goods. DeMagistris Fashion Com- pany, based in New York City, imports leather coats

from Acua Leather Goods, a reliable and longtime supplier, based in Buenos Aires, Argentina. Payment is in Argentine pesos. When the peso lost its parity with the U.S. dollar in January 2002, it collapsed in value to Ps4.0/$byOctober2002.Theoutlookwasforafurther decline in the peso's value. Since both DeMagistris and Acua wanted to continue their longtime relationship, they agreed on a risk-sharing arrangement. As long as the spot rate on the date of an invoice is between Ps3.5/$ and Ps4.5/$, DeMagistris will pay based on the spot rate. If the exchange rate falls outside this range, they will share the difference equally with Acua Leather Goods. The risk-sharing agreement will last for six months, at which time the exchange rate limits will be reevaluated. DeMagistris contracts to import leather coats from Acua for Ps8,000,000 or $2,000,000 at the current spot rate of Ps4.0/$ during the next six months