Question

ABC,Inc. engages in international trade with Thailand whose currency is the Thai bhat (thb). Over the next quarter, ABC expects to receive inflows of THB 12 million and outflows of THB 18 million. The range of possible exchange rates at the end of the quarter are $0.02 to $0.04. Calculate the average net inflow or outflow in U.S. dollars. (Hint: The average inflow or outflow is the midpoint of the range of possible values)

Answer 1

The average net inflow or outflow in U.S. dollars is -$180,000.ABC, Inc. expects to have a net outflow of 6 million THB, and using the midpoint average exchange rate of $0.03, the average net outflow in U.S. dollars is calculated to be $180,000.

Step-by-step explanation:

To calculate the average net inflow or outflow in U.S. dollars, we need to find the midpoint of the range of possible exchange rates. The range of possible exchange rates is $0.02 to $0.04. The midpoint of a range is calculated by adding the lowest value to the highest value and dividing the sum by 2. In this case, the midpoint is $0.02 + $0.04 / 2 = $0.03.

Next, we need to multiply the average exchange rate by the total inflows and outflows in Thai bhat. The average exchange rate is $0.03 and the total inflows are THB 12 million, which converts to $0.03 x 12 million = $360,000. Similarly, the total outflows are THB 18 million, which converts to $0.03 x 18 million = $540,000.

Finally, to find the average net inflow or outflow, we subtract the total outflows from the total inflows. In this case, the average net outflow is $360,000 - $540,000 = -$180,000. Therefore, the average net inflow or outflow in U.S. dollars is -$180,000.