Question

A U.S. firm sells merchandise today to a British company for pound​150,000. The current exchange rate is ​$1.55/pound ​, the account is payable in three​ months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to ​$1.52/pound the U.S. firm will realize a​ ________ of​ ________.

Gain; $4,500


Loss; $4,500


None of the above

Answer 1

The U.S firm made a loss of $4,500

Step-by-step explanation:

In order to determine weather the U.S made a loss let us assume payment was made when the exchange rate was $1.55/pound and calculate the amount, and also calculate the amount when exchange rate is $1.52/pound.

cost of merchandise pound​150,000.

• when exchange was $1.55/pound, the U.S firm would get

`150,000*1.55= 232,500` ,

the firm would get $232,500

• when exchange was $1.52/pound, the U.S firm would get

`150,000*1.52= 228,000`

the firm would get $228,000

`232,500-228,000= 4,500`

Hence the U.S firm made a loss of $4,500