Final answer:
FOB destination means the seller bears the risk and cost of transportation until the goods are delivered to the buyer’s specified location. The term “Free on Board” indicates who owns the goods during transit, and 'destination' means the seller owns them until delivery. This affects how revenue and expenses are considered, especially for foreign firms doing business in other currencies.
Step-by-step explanation:
When goods are purchased "FOB destination", it means the seller retains the risk of loss until the goods reach the buyer’s location. Essentially, the seller is responsible for the freight charges and any potential damage to the products during transit. The term FOB stands for “Free on Board,” and ‘destination’ indicates that the seller owns the goods until they are delivered to the destination specified by the buyer. This is in contrast to “FOB shipping point,” where the buyer assumes responsibility once the goods are shipped.
An example to illustrate this concept would be a foreign firm that has sold imported goods in the United States and has earned U.S. dollars. If this firm agrees to a deal where the goods are shipped FOB destination, they would be responsible for ensuring the goods reach the buyer in good condition within the U.S. before they can consider the revenue as earned. They must also consider any potential exchange rate issues when they try to pay expenses incurred in their home country using the U.S. dollars earned. The term can be similarly applicable to situations like U.S. tourists purchasing goods with the condition that the sender is responsible until the goods reach the tourists' home country.