International Finance. Chapter 18. © 2003 South-Western/Thomson Learning. Globalization of Business. Imports and exports have increased substantially since the 1960s Many U.S. companies are now multi-national companies Own facilities and equipment and produce goods in another country
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© 2003 South-Western/Thomson Learning
Represents an indirect quote—the inverse of a direct quote—how many units $1 U.S. will buy.
Represents a direct quote—how many U.S. dollars are required to buy one unit of foreign currency.
Q: An American company orders 500 sweaters on 9/07/01 from a German company at a cost of 55,000 marks with terms of n/60. The exchange rate at that time was $0.4579 U.S. per mark. Calculate the gain or loss on the transaction if the bill was not paid until 11/7/01, when the exchange rate was $0.4581 U.S. per mark.
A:If the bill had been paid on 9/07/01 at the then current exchange rate, the cost would have been $25,184.5, or 55,000 marks 0.4579. However, if the bill was not paid until 11/7/01 at the then current exchange rate, the price would have been $25,195.5, or 55,000 marks 0.4579. Thus, an $11 loss would have resulted due to the slight shift in exchange rates over the two months.
ExampleChanging Exchange Rates and Exchange Rate Risk—Example