A US Firm Sells Merchandise Today to a British Company for for £150,000

question 39

Multiple Choice

A U.S. firm sells merchandise today to a British company for £150,000. The current exchange rate is $1.55/£ , 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 $1.58/£ the U.S. firm will realize a ________ of ________.

• A) loss; $4,500
• B) gain; $4,500
• C) loss; £4,500
• D) gain; £4,500

---

Definitions:

Precipitation

The process by which water vapor in the atmosphere condenses into droplets or ice crystals that fall to the Earth's surface, contributing to the hydrological cycle.

Evaporation

The process by which water is transformed from a liquid to a gas or vapor state, often contributing to the hydrologic cycle by removing moisture from bodies of water, soil, and other surfaces.

Granite Bedrock

The solid rock layer under the soil composed primarily of granite, a coarse-grained igneous rock consisting mainly of quartz, mica, and feldspar.

Spheroidal Weathering

A form of mostly chemical weathering in which concentric or spherical shells of decayed rock are successively separated from a block of rock.