Suppose your company imports computer motherboards from Singapore. The exchange

Question

Suppose your company imports computer motherboards from Singapore. The exchange rate is S$1.2348/US$. You have just placed an order for 34,000 motherboards at a cost to you of 142.9 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $125 each.

a. What is your profit at the current exchange rate?

b. What will your profit be if the exchange rate goes up by 10 percent?

c. What will your profit be if the exchange rate goes down by 10 percent?

d. What is the percentage change in the exchange rate that would result in a break-even profit?

Explanation / Answer

a) Buying Price (In US$)= 142.9/1.2348= US $ 115.73

Selling Price = US $ 125

Profit=(125-115.73)*34000 = US $ 315180

b)New rate = 1.2348*1.1= S$ 1.35828

Revised buying price= 142.9/1.35828 = US $105.21

Profit = (125-105.21)*34000 = US$ 672860

c)New Rate = 1.2348*0.90= S$1.1113

Revised buying price= 142.9/1.1113 = US $ 128.59

Loss = (128.59-125)*34000 = US $122060

d) % change in exchange rate that would result in a break-even profit=

[1.2348-(142.9/125)]/1.2348*100 = 7.42%

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