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

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Definitions:

Kinked-Demand Curve

A demand curve that has a flatter slope above the current price than below the current price. Applies to a noncollusive oligopoly firm if its rivals will match any price decrease but ignore any price increase.

Elastic Demand

A situation where the quantity demanded of a good or service changes significantly due to a change in its price.

Marginal Revenue Curve

A curve that shows the change in total revenue resulting from selling one additional unit of a product or service.

Standardized Product

Products that are uniform in quality and features, offering no significant difference from the same products offered by other sellers.