Final Answer:
EDI initially agreed to purchase artwork for $32,000 based on the September 1 spot rate. The cost varied due to exchange rate fluctuations: $38,500 at delivery, $37,500 if paid on December 31, and $30,000 if paid on April 1, reflecting the impact of changing spot rates.
Step-by-step explanation:
Equitable Diversity International Inc. (EDI) engaged in a foreign exchange transaction when agreeing to purchase artwork from a Mexican seller. The initial deal, struck on September 1, Year 5, involved a purchase price of 500,000 Mexican pesos (MXN) at a spot rate of MXN1 = $0.064, resulting in a cost of $32,000 in USD. However, by the delivery date on December 1, Year 5, the spot rate had risen to MXN1 = $0.077, increasing the cost to $38,500 if EDI paid at that moment.
The invoice required payment by April 1, Year 6, introducing further dynamics influenced by exchange rate fluctuations. The spot rate on December 31, Year 5, was MXN1 = $0.075, leading to a potential cost of $37,500 if EDI paid by that date. Notably, the actual payment occurred on April 1, Year 6, when the spot rate had decreased to MXN1 = $0.060, resulting in a reduced cost of $30,000.
This scenario underscores the financial impact of currency exchange rate movements on international transactions, showcasing how the timing of payments can significantly influence the final cost for the purchasing party.