Question
Problem 5: Inc. a U.S. based exporter that exclusively sells its products in Great Britain. inc, expects to sell 2,000 units at a price of
Problem 5: Inc. a U.S. based exporter that exclusively sells its products in Great Britain. inc, expects to sell 2,000 units at a price of GBP 10.00 per unit. inc currently produces in KY and has a variable production cost of USD 8.10 per unit, and total fixed costs of USD 5,000. Norse puts in place an FX pass through policy of 50%. Assuming that Norse Inc. can change its price without affecting quantity demanded in the British market. What is Norses FX operating exposure with the FX pass through policy? Set up the base case at XUSD/GBP = 1.50 and then recalculate the operating cash flow based using the new sales price at XUSD/GBP = 1.35.
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