Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell the S-type in the UK with a 20% margin for a price of £27,363. Today these cars are available in the U.S. for $55,000 which is the UK price multiplied by the current exchange rate of $2.01/E. Jaguar has committed to keeping the U.S. price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/E, and Jaguar has not hedged against currency changes, what is the percentage margin the company will realize given the new exchange rate? 20.0% 15.3% 12.2% D 7.2%

Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell the S-type in the UK with a 20% margin for a price of £27,363. Today these cars are available in the U.S. for $55,000 which is the UK price multiplied by the current exchange rate of $2.01/E. Jaguar has committed to keeping the U.S. price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/E, and Jaguar has not hedged against currency changes, what is the percentage margin the company will realize given the new exchange rate? 20.0% 15.3% 12.2% D 7.2%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell the S-type in the UK with a 20% margin for a price of
£27,363. Today these cars are available in the U.S. for $55,000 which is the UK price multiplied by the current exchange rate of
$2.01/E. Jaguar has committed to keeping the U.S. price at $55,000 for the next six months. If the UK pound appreciates against the
USD to an exchange rate of $2.15/£, and Jaguar has not hedged against currency changes, what is the percentage margin the
company will realize given the new exchange rate?
(A) 20.0%
15.3%
12.2%
D 7.2%

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