YOU ARE A PURE COMPETITOR—WHAT WAS YOUR REVENUE YESTERDAY? Suppose that you oper
ID: 1192734 • Letter: Y
Question
YOU ARE A PURE COMPETITOR—WHAT WAS YOUR REVENUE YESTERDAY? Suppose that you operate a purely competitive firm that buys and sells foreign currencies. Also suppose that yesterday your business activity consisted of buying 100,000 Swiss francs at the market exchange rate and selling them to U.S. travelers to Switzerland for a 3 percent commission. Go to the Federal Reserve Web site at www.federalreserve.gov and select, in order, Economic Research and Data, Statistics, and Foreign Exchange Rates. http://www.federalreserve.gov/releases/h10/Current/default.htm What was your total revenue in dollars yesterday (be sure to include your commission)? Why would your profit for the day be considerably less than this total revenue?
Explanation / Answer
Purchase price of 100,000 SF in Dollar = 100,000 SF / 0.9536 SF/$
= $104,865.77
Selling price (Total Revenue) of the SF purchased = $104,865.77 x 1.03 = $108,011.74
My profit will be less than total revenue because, when I myself purchased the 100,000 SF, I also needed to pay a commission to the dealer who sold me the SF. This is excluded from this computation since data is not provided.
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