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An US based firm, S&S Air, is considering going international by selling their planes in Europe for the first time. Sales will be in Euros and will be paid to the company 90 days after the order is filled. All production (cost) is in US ($). Ignore all other expenses.
What happens to the company’s profit if the dollar strengthens?
-decreases
-increases
-no certain pattern
-need more information
Which of the following is not one way that the company can use to hedge its exchange rate risk?
-forward
-future
-newspaper
-option
For simplicity, assume exchange rate remains $1.4/Euro for a 90-day period. If sales are 5 million Euros and production cost is 80% of sales, how much would the profit be for the company?
-$5million
-it would be a loss
-$1.4 million
-$7million
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