The greatest impact on profit either positive or negative

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Reference no: EM132025554

1. The U.S. dollar rises 20%, lowering imported commodity costs but but then the cows come back! With lower inflation, interest rates fall to 6%. Unfortunately, with so much capacity, the selling price of milk drops to $1.20. Starting from the "Base Case" which Financial Risk Factor had the greatest impact on profit, either positive or negative?

Selling price per gallon.

Cost of goods sold (owing to foreign currency).

Interest expense

None of the above

2. New Holstein Trading Company ("NHTW") was set up after all the cows in Wisconsin got ticked off at the farmers for some reason and went to South Dakota. ? Why, I have no idea. NHTW purchases 1 million gallons of milk per year. "NHTW" has borrowed $1,000,000 at 8% interest to set up operations and is sourcing milk from other parts of the United States, Canada and Mexico. Tax rate is 40%. It was all working until the U.S. dollar (USD) fell by 10% against the Canadian dollar ($CAD) and the Mexican Peso (MXN), raising costs when translated into USD. At the same time the selling price per gallon rose by $0.05 to $1.55 per gallon. Which of the following risks were reflected in this scenario?

Commodity price risk

Currency exchange rate risk

Both options provided.

Neither A nor B.

Reference no: EM132025554

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