Jupiter Engine Company has recently negotiated contracts to sell 1 of its X-model engines to a customer in England and 1 of its Z-model engines to a customer in Germany. Jupiter will be paid in 3 months in the currency of its customers. The engine selling prices are: X-model 200,000 British pounds Z-model 265,500 Euros Jupiter’s costs to produce each engine in US dollars: X-model $225,000 Z-model $270,000 Today’s exchange rates: GBpound/US$ 1.20 US$ /Euro 0.90 Calculate Jupiter’s profits from each engine sale, based on today’s exchange rates. (Profit = Price in US dollars - costs in US dollars) Jupiter will not actually be paid for 3 months. If they choose not to hedge themselves against currency fluctuations by locking in today’s rate, they will either make less or more profit based on changes in the exchange rate. Would they prefer to see the US dollar get STRONGER or WEAKER during this period? (circle correct choice) Would they prefer to see the Euro get STRONGER or WEAKER during this period? (circle correct choice)
Jupiter Engine Company has recently negotiated contracts to sell 1 of its X-model engines to a customer in England and 1 of its Z-model engines to a customer in Germany. Jupiter will be paid in 3 months in the currency of its customers. The engine selling prices are: X-model 200,000 British pounds Z-model 265,500 Euros Jupiter’s costs to produce each engine in US dollars: X-model $225,000 Z-model $270,000 Today’s exchange rates: GBpound/US$ 1.20 US$ /Euro 0.90 Calculate Jupiter’s profits from each engine sale, based on today’s exchange rates. (Profit = Price in US dollars - costs in US dollars) Jupiter will not actually be paid for 3 months. If they choose not to hedge themselves against currency fluctuations by locking in today’s rate, they will either make less or more profit based on changes in the exchange rate. Would they prefer to see the US dollar get STRONGER or WEAKER during this period? (circle correct choice) Would they prefer to see the Euro get STRONGER or WEAKER during this period? (circle correct choice)
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
Related questions
Question
Jupiter Engine Company has recently negotiated contracts to sell 1 of its X-model engines to a customer in England and 1 of its Z-model engines to a customer in Germany. Jupiter will be paid in 3 months in the currency of its customers.
The engine selling prices are:
X-model 200,000 British pounds
Z-model 265,500 Euros
Jupiter’s costs to produce each engine in US dollars:
X-model $225,000
Z-model $270,000
Today’s exchange rates:
GBpound/US$ 1.20
US$ /Euro 0.90
- Calculate Jupiter’s profits from each engine sale, based on today’s exchange rates.
(Profit = Price in US dollars - costs in US dollars)
- Jupiter will not actually be paid for 3 months. If they choose not to hedge themselves against currency fluctuations by locking in today’s rate, they will either make less or more profit based on changes in the exchange rate.
Would they prefer to see the US dollar get STRONGER or WEAKER during this period? (circle correct choice)
Would they prefer to see the Euro get STRONGER or WEAKER during this period? (circle correct choice)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education