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Assume You Manage a Firm That Faces Transaction Exposure

question 31

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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 €148 per part.You have already sold 13,000 parts and are now awaiting payment which you expect to receive 90 days from now.The exchange rate today is $1.20/€.Over the next ninety days,the direct exchange rate unexpectedly moves from $1.20/€ to $1.17/€.What is the loss in domestic revenue due to this unexpected move in the exchange rate?


Definitions:

Life Of The Project

Refers to the total duration from the initiation to the completion of a project, encompassing all phases of development and implementation.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows over a period of time.

Investment Project

An undertaking requiring capital investments, aimed at generating future benefits, such as profits or community advantages.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used to evaluate the profitability of an investment.

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