Question
Washington Co. and Vermont Co. have no domestic business. Both have a similar dollar equivalent amount of international exporting business. Washington Co. exports all of
Washington Co. and Vermont Co. have no domestic business. Both have a similar dollar equivalent amount of international exporting business. Washington Co. exports all of its products to Canada, whereas Vermont Co. exports its products to Poland and Mexico, with about half of its business in each of these 2 countries. Each firm receives the currency of the country where it sends its exports. You obtain the end-of-month spot exchange rates of the currencies mentioned above during the end of each of the last 6 months.
End of Month | Canadian Dollar | Mexican Peso | Polish Zloty |
1 | $0.8142 | $.09334 | $.29914 |
2 | 0.8176 | .09437 | .29829 |
3 | 0.8395 | .09241 | .30187 |
4 | 0.8542 | .09263 | .3088 |
5 | 0.8501 | .09251 | .30274 |
6 | 0.8556 | .09448 | .30312 |
You want to assess the data in a logical manner to determine which firm has a higher degree of exchange rate risk. Show your work and write your conclusion. [HINT: The percentage change in the portfolio of currencies is a weighted average of the percentage change in each currency in the portfolio.]
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