34.

Exchange rates and operating profit Answer: e Diff: M

We eventually want everything in U.S. dollars, so convert to U.S. dollars

when you get the chance.

Step 1: Calculate revenues in terms of U.S. dollars:

Rev(U.S.) = (120 Y/1 L)  ($1 U.S./116.6 Y)
= $1.0292 U.S.

Step 2: Calculate the cost of production in terms of U.S. dollars:

Cost(U.S.) = (0.45 CD/1 L)  ($0.66 U.S./1.0 CD)
= $0.2970 U.S./L.

Step 3: Calculate the profit in U.S. dollars:

Profit = Revenues - Cost
= $1.0292 - $0.2970
= $0.7322 U.S.

35. Exchange rates and operating profit Answer: d Diff: M

Step 1: Calculate the dollar cost of producing 1 unit of lime juice:

(1.2 real/1 unit)  ($1.00/1.75 real) = $0.6857 per unit.

Step 2: Calculate dollar revenues of selling 1 unit of lime juice:

(100 yen/1 unit)  ($1.00/120 yen) = $0.8333 per unit.

Step 3: Calculate the dollar profit per unit of lime juice sold:
Profit = Revenues - Cost
= $0.8333 - $0.6857
= $0.1476  $0.15.
36. Exchange fluctuations and T-bills Answer: a Diff: M

Time line:
0 6 months

US$: -9,708.74 FV = 10,000

Spot rate: 1.42 SWF/$U.S. Spot rate = 1.324 SWF/$U.S.
SWF: -13,786.41 FV = 13,240 SWF

Financial calculator solution:

Calculate the 6-month return to the Swiss investor after she has exchanged
$U.S. for Swiss francs.
Inputs: N = 1; PV = -13,786.41; PMT = 0; FV = 13,240. Output: I = -
3.96%.
Annualized nominal rate of return = -3.96%(2) = -7.92%.

Chapter 19 - Page 21