Question

South coast inc. (sci), imports extreme condition outdoor wear and equipment from the allofit territories company (atc) located in canada. with the steady decline of the u.s dollar against the canadian dollar sci is finding a continued relationship with atc to be an increasingly difficult proposition. in response to sci's request, atc has proposed the following risk-sharing arrangement. first, set the current spot rate of c$1.20/$ as the base rate. as long as spot rates stay within 5% (up or down) nri will pay at the base rate. any rate outside of the 5% range, atc will share equally with nri the difference between the spot rate and the base rate. if sci had a payable of c$100,000 due today and the current spot rate were c$1.17/$, how much would sci owe in u.s. dollars?

A. $85,837
B. $83,333
C. $85,470
D. $117,000

Answer 1

SCI would owe $85,470 in U.S. dollars for a payable of C$100,000 with a current spot rate of C$1.17/$ because the spot rate is within the 5% range of the base rate, rendering the risk-sharing arrangement unnecessary.

Step-by-step explanation:

The student's question involves calculating the U.S. dollar amount owed by South Coast Inc. (SCI) to the Allofit Territories Company (ATC) given a specific payable and spot rate under a proposed risk-sharing arrangement. Given the payable of C$100,000 and the current spot rate of C$1.17/$, we use this spot rate to determine the amount owed because it is within the 5% range of the base rate C$1.20/$, and no risk-sharing is applied.

To calculate the amount owed in U.S. dollars, we divide the Canadian dollar payable amount by the spot rate:

C$100,000 ÷ C$1.17/$ = $85,470.09 (approximately)

This means that SCI would owe $85,470.09 in U.S. dollars, which we can round to $85,470 as per the presented options.