Question
Rolls-Royce, the British jet engine manufacturer, sells engines to U.S. airlines and buys parts from U.S. companies. Suppose it has accounts receivable of $1.5 billion
Rolls-Royce, the British jet engine manufacturer, sells engines to U.S. airlines and buys parts from U.S. companies. Suppose it has accounts receivable of $1.5 billion and accounts payable of $740 million. It also has borrowed $600 million. The current spot rate is $1.9528/.
a. What is Rolls-Royces dollar transaction exposure in dollar terms? In pound terms?
b. Suppose the pound appreciates to $2.064/. What is Rolls-Royces gain or loss, in pound terms, on its dollar transaction exposure?
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International Financial Management
Authors: Jeff Madura
7th Edition
0324071744, 978-0324071740
