Assume You Manage a Firm That Faces Transaction Exposure

question 50

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 Italy and received a promised payment of €108 per part.You have already sold 7,000 parts and are now awaiting payment which you expect to receive 90 days from now.The exchange rate today is $1.17/€.Over the next ninety days,the direct exchange rate unexpectedly moves from $1.17/€ to $1.15/€.What is the loss in domestic revenue due to this unexpected move in the exchange rate?

• A)-$15,120
• B)-$24,920
• C)-$28,520
• D)-$36,220

---

Definitions:

Tax Revenue

The income that is collected by the government through the imposition of taxes on goods, services, and income.

Marginal Tax Rates

The rate at which the last dollar of income is taxed, indicating how much tax will be paid on an additional dollar of income.

Laffer Curve

A theoretical representation of the relationship between tax rates and the amount of tax revenue collected by governments, suggesting that increasing tax rates beyond a certain point is counter-productive for raising tax revenue.

GDP

Stands for Gross Domestic Product, a measure of the economic performance of a country, representing the total value of all goods and services produced over a specific time period.