Suppose your company imports computer motherboards from Singapore. The exchange
ID: 2795821 • Letter: S
Question
Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.5122 S$/US$. You have just placed an order for 23,000 motherboards at a cost to you of 231.55 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $161 each.
Calculate your profit if the exchange rates stay the same over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Profit $
Calculate your profit if the exchange rate rises by 11 percent over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Profit $
Calculate your profit if the exchange rate falls by 11 percent over the next 90 days. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Profit $
What is the break-even exchange rate? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
Break-even exchange rate S$ /$
What percentage decrease does this represent in terms of the Singapore dollar versus the U.S. dollar? (Enter your answer as a positive value. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Percentage decrease %
2 Suppose the spot and three-month forward rates for the yen are ¥102.22 and ¥101.17, respectively.
a. Is the yen expected to get stronger or weaker?
(Click to select)WeakerStronger
b. What would you estimate is the difference between the inflation rates of the United States and Japan? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)
Difference between the inflation rates %
Explanation / Answer
NOTE: Singapore Dollar will be denoted as SGP
Current Exchange Rate = 1.5122 SGP/ 1 USD
No. of motherboards purchased = 23000 with each motheboard priced at 231.55 SGP
Therefore,Total Cost of Motherboards = No. of motherboards purchased x each motherboards cost = 23000 x 231.55 = 5325650 SGP
If exchange rate remains unchanged after 90 days, then total cost in USD = cost in SGP / current exchange rate = 3521789.446 USD
Sale Price per motherboard =161 USD.
Therefore, total revenue = 23000 x 161= 3703000 USD (assuming all motherboards imported are sold in the US)
Therefore, Profit = Revenue - Cost = 3703000 - 3521789.446 = 181210.55 USD
If exchange rate rises by 11 percent it means that 1 USD can now buy 11 percent more SGP's than before.
At current rates 1 USD could buy 1.5122 SGP
After rise of 11 % , 1 USD can buy = (1.5122 x 1.11) = 1.6785 SGP
Cost of motherboard in USD at new exchange rate = Cost in SGP / New Exchange Rate = 5325650 / 1.6785 =3172862.675 USD
Revenue = No. of mother boards sold x dollar price for each mother board = 23000 x 161 = 3703000 USD
Therefore, Profit = Revenue - Cost = 3703000 - 3172862.675 = 530137.32 USD
If exchange rate falls by 11% then 1 USD can buy 11% less SGPs than earlier
Currently 1 USD can purchase 1.5122 SGP. After a fall of 11% 1 USD can purchase = (1.5122 x 0.89) = 1.3458 SGP
Therefore, exchange rate after 90 days= 1.3458 SGP / 1USD
Cost of motherboards in USD = Cost in SGP / Decreased exchange rate = 5325650 / 1.3458 = 3957237.331 USD
Revenue (in USD) = 23000 x 161 = 3703000. Therefore, Profit = Revenue - Cost = 3703000 - 3957237.331 -254237.33 USD (it is infact a loss)
Break even exchange rate would be the one which would equalize the revenue of 3680000 USD to the cost of motherboards of 5325650 SGP.
Let this exchange rate be K SGP/ 1 USD.
Therefore, (5325650 / K) = 3703000
Solving the above equation , break even exchange rate = 5325650 / 3703000 = 1.4381 SGP / 1 USD
Break Even Exchange Rate = 1.4471 SGP / 1 USD which means that 1 USD can buy 1.4381 SGP
Current Exchange Rate = 1.5122 SGP / 1 USD which means 1 USD can buy 1.5122 SGP
Therefore, decrease in exchange rate = [(1.5122 - 1.4381) / 1.5122] x 100 = 4.89%
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