A US based computer manufacture produces and sells laptops in South America thro
ID: 2803924 • Letter: A
Question
A US based computer manufacture produces and sells laptops in South America through two manufacturing facilities: one in Argentina and the other in Brazil. The following applies:
Argentina
Brazil
Investment price
200 million US$
200 million US$
Cost per Laptop
900 pesos
600 reals
Price per Laptop
1200 pesos
800 reals
Projected Annual Earnings
150 million pesos
100 million reals
Exchange Rate
Pesos 3 / US$
Reals 2/US$
If Brazil real depreciates 20% against the US$, what is the new pesos/real exchange rate?
1.2
1.25
1.88
1.9
Argentina
Brazil
Investment price
200 million US$
200 million US$
Cost per Laptop
900 pesos
600 reals
Price per Laptop
1200 pesos
800 reals
Projected Annual Earnings
150 million pesos
100 million reals
Exchange Rate
Pesos 3 / US$
Reals 2/US$
Explanation / Answer
Pesos / Real = (Pesos / US$) / (Reals / US$)
Current rate = 3 / 2 = 1.5
New real rate = 2*(1+20%) = 2.4
New exchange rate = 3/2.4 = 1.25 (Option B)
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