Section IV: Exchange Rate Calculation Questions (Total 10 points) 1. The fluctuation of currency exchange rate can affect a company's profitability dramatically when it is involved in international business. You are asked to find out the exact impact of currency exchange rate fluctuation on a company's financial gain or loss. A U.S. company outsources 10,000 sports jackets from Italy at a unit price of 50 agreed between the U.S. buyer and the Italian vendor (the vendor only accepts payment in Euro.). When the contract was signed, the exchange rate was US$1.10 to Euro 1.00 (US$1.10 = 1.00). The contract value is 500,000 (equally US$550,000 at the time the contract signed). The Italian vendor will be paid at the full contract amount in Euro upon receipt of goods by the U.S. buyer in 120 days. Please answer the following TWO questions [Assumption: the U.S. company won't change its US dollars to EURO until the order is delivered.] List the calculation steps and answer the questions (1). If the exchange rate became US$1.30 to Euro 1.00 (US$1.30 = 1.00) in 120 days, would this U.S. company gain or lose profit? How much is the gain or loss in US$? (5 points) (2). If the exchange rate becomes US$0.80 to Euro 1.00 in 120 days (US$0.80 = 1.00), would this U.S. company gain or lose profit? How much is the gain or loss in US$? (5 points) Section IV: Exchange Rate Calculation Questions (Total 10 points) 1. The fluctuation of currency exchange rate can affect a company's profitability dramatically when it is involved in international business. You are asked to find out the exact impact of currency exchange rate fluctuation on a company's financial gain or loss. A U.S. company outsources 10,000 sports jackets from Italy at a unit price of 50 agreed between the U.S. buyer and the Italian vendor (the vendor only accepts payment in Euro.). When the contract was signed, the exchange rate was US$1.10 to Euro 1.00 (US$1.10 = 1.00). The contract value is 500,000 (equally US$550,000 at the time the contract signed). The Italian vendor will be paid at the full contract amount in Euro upon receipt of goods by the U.S. buyer in 120 days. Please answer the following TWO questions [Assumption: the U.S. company won't change its US dollars to EURO until the order is delivered.] List the calculation steps and answer the questions (1). If the exchange rate became US$1.30 to Euro 1.00 (US$1.30 = 1.00) in 120 days, would this U.S. company gain or lose profit? How much is the gain or loss in US$? (5 points) (2). If the exchange rate becomes US$0.80 to Euro 1.00 in 120 days (US$0.80 = 1.00), would this U.S. company gain or lose profit? How much is the gain or loss in US$? (5 points)
