Assume You Manage a Firm That Faces Transaction Exposure

question 20

Multiple Choice

Assume you manage a firm that faces transaction exposure.Your company manufactures and sells automobile parts around the world.You have just completed a large sale of parts to an auto manufacturer in France and received a promised payment of €138 per part.You have already sold 18,000 parts and are now awaiting payment which you expect 90 days from today.The exchange rate today is $1.17/€.Over the next ninety days,the direct exchange rate unexpectedly moves from $1.17/€ to $1.25/€.What is the gain in domestic revenue due to this unexpected move in the exchange rate?

• A)$106,000
• B)$134,900
• C)$148,500
• D)$198,720

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Definitions:

Cup of Coffee

A typical measure for serving coffee, involving brewing ground coffee beans with hot water, often enjoyed as a beverage worldwide.

Gallon of Gasoline

A unit of measurement equal to 3.785 liters used for measuring the volume of gasoline.

Substitution Effect

Variations in consumption habits influenced by the change in prices of goods in comparison to each other, leading to a preference shift among consumers from one good to another.

Cheaper

Describes goods or services being offered at a low price, especially in relation to comparable items.