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What will be the dollar cost of six months

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Reference no: EM133001473

Problem - Brownies Chocolate Company, based in Florida, imports milk from Vitality Dairy, an Australian supplier. Payment is settled in Australian Dollar.

Since both Brownies and Vitality wanted to continue their longtime relationship they agreed on a risk-sharing arrangement. As long as the spot rate on the date of an invoice is between AU$1.20 and AU$1.50, Brownies will pay based on the spot rate.

If the exchange rate falls outside this range, they will share the difference equally with Vitality.

The risk-sharing agreement will last for six months, at which time the exchange rate limits will be reevaluated. Brownies contracts to import milk and heavy cream from Vitality for AU$134,000 or $100,000 at the current spot rate of AU$1.34/$ during the next six months.

a. If the exchange rate changes immediately to AU$1.70/$, what will be the dollar cost of 6 months of imports to Brownies?

b. At AU$1.80/$, what will be the Australian Dollar export sales in Vitality to Brownies Chocolate Company?

Reference no: EM133001473

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