Multinational Financial Management

DeMagistrisFashion Company, based in New York City, imports leather coats from Acua Leather Goods, a reliable and longtime supplier, based in Argentina. Payment is in Argentine pesos. Since both DeMagistris and Acua wanted to continue their longtime relationship they agreed on a risk-sharing arrangement. Assume that the exchange rate at the time of the agreement is Ps 65/$ and they agree to share the difference equally between the base rate and the actual spot rate. DeMagistris contracts to import leather coats fromAcua for Ps50,000.

a)If the exchange rate changes to Ps75.00/$, what will be the effective rate under the risk sharing agreement?

b)At Ps75.00/$, what will be the dollar cost of a leather coat to DeMagistris?

c)At Ps75.00/$, what will Acua Leather Goods receive in pesos per leather coat?

d)If the exchange rate changes to Ps50.00/$, what will be the effective rate under the risk sharing agreement?