Case-in-brief - Argentina Currency DevaluationYour company is currently operating in Argentina. Management is concerned to what extent the Argentine peso will be devalued. Itwants to examine two scenarios: one where the currency drops 15% and one where it drops 26%. Currently, the exchange rate is 94pesos (ARS$ 94) to 1 US dollar (US$1).Contribution after marketing in Argentina was 21% of sales (see Exhibit). Your goal is to maintain this percentage.Exhibit: Argentina Contribution after Marketing (ARS$ Argentine Pesos)Unit SalesManufacturer SalesCostsGross MarginTotal MarketingCont bution after MarketingUnits46ARS325.9 100%183.3142.673.369.3%56%44%22%21%QUESTION 1How would the devaluation of the Argentine peso (ARSS) affect your contribution in the home currency (US$)?Current contribution in USD (home currency): USD $ 0.000Contribution in USD after 15% drop: USD $ 0.000Contribution in USD after 26% drop: USD $ 0.000MillionsMillionMillionGo to last question

The question is asked for determining the effect of changes in the exchange rate on the total…

Answered: Case-in-brief - Argentina Currency…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An Omani firm has to make payment of 3 million INR to Indian Company after 30 days. Since the company exposing the risk of currency fluctuation so purchased the forward contract at OMR0.006279 = 1 INR. the spot rate after 30 days was OMR 0.006542/INR Which of the following will be the profit or loss to the firm, if they execute the forward contract? a. Loss of OMR 789 b. All the options are wrong c. Profit of OMR789 d. Profit of OMR 526 e. Loss of OMR 526
QUESTION It is 1 June, and DML Ltd. is anticipating payment of GBP100,000 to a British supplier in two months’ time. The spot GBPGHS exchange rate is currently GHS5.2110 – GHS5.2260 = GBP1. Pundits are suggesting that the cedi might weaken against the pound sterling in the coming months. The directors of the company are considering hedging against potential currency risk using either forward market transaction or money market transactions. Below are information relating to instruments in the two markets. Forward market (contract specifications): 2-month forward bid rate on 1 June: GHS5.2340 = GBP1 2-month forward ask rate on 1 June: GHS5.2490 = GBP1 Money market (annualized interest rates on 1 June): Investing rate Borrowing rate Ghana 24.0% 28.0% United Kingdom 2.4%…
Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year.
1
Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4073 per Singapore dollar. You have just placed an order for 35,062 motherboards at a cost to you of S158 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $113 each. Calculate your profit if the exchange rates goes down by 14.51% over the next 90 days.
IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is #105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8 percent per annum in the United States and 7 percent per annum in Japan. The management of IBM decided to use a money market hedge to deal with this yen account payable. a. Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. b. Conduct a cash flow analysis of the money market hedge.
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A company manufactures a product in the United States and sells it in England. The unit cost of manufacturing is $52. The current exchange rate (dollars per pound) is 1.213. The demand function, which indicates how many units the company can sell in England as a function of price (in pounds) is of the power type, with constant 27556733 and exponent -2.5. A) Develop a model for the company's profit (in dollars) as a function of the price it charges (in pounds). Then use a data table to find the profit-maximizing price to the nearest pound. Assume that the price ranges from £45 to £100 in increments of £1. Round your answer for the maximum profit to the nearest dollar and your answer for the best price to the nearest pound. 1. Maximum profit: $______ 2. Best price: £ ______

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