Suppose your company imports computer motherboards from Singapore. The exchange

Question

Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.2943 S$/US$. You have just placed an order for 24,000 motherboards at a cost to you of 239.00 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $200 each.

1. What is your profit at the current exchange rate? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

2.What is your profit if the exchange rate goes up by 10 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

3.What is your profit if the exchange rate goes down by 10 percent?

4.What is the break-even exchange rate? (Round your answer to 4 decimal places. (e.g., 32.1616))

5.What percentage rise or fall does this represent in terms of the Singapore dollar versus the U.S. dollar? (Input the value as positive numbers.)

Explanation / Answer

1. Sale Price = 24,000 * 200 = $ 4,800,000

Cost= 24,000 * 239 = S $ 5,736,000

Converting the S $ into US $ by applying the exchange rate, cost will be = 5,736,000/1.2943 = $ 4,431,739.16

Hence Profit = Sales- cost

Profit = $ 368,260.84

2. Exchange rate goes up by 10% means depreciation in the value of Singapore $.

New rate after 10% increase = S $ 1.4237 per US $ { Calculation Step: 1.2943 *1.1}

Profit = Sales - Cost = 4,800,000 - ( 24,000 * 239)/1.4237= $ 771,061.32

3. Exchange rate goes down means appreciation in value of Singapore $

Now, rate will be: S$ 1.1649 per US $

Loss = 4,800,000- (24,000*239)/1.1649 = $ 124,027.81

4.At Break-even exchange rate, there will be neither profit, nor loss.

4,800,000 - (24,000*239)/x = 0

Solving the above equation we get Break even exchange rate= S$1.1950 per US$

5. % Fall = (1.2943 - 1.1950)/1.2943 = 7.67%

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