Hampshire Motors Ltd., a british manufacturing company, wants to buy a productio

Question

Hampshire Motors Ltd., a british manufacturing company, wants to buy a production machine that insn"t available in England. Comparable products are mad by an American company and a French firm. The Americans have quoted Hampshire a price of $ 175,000, while the French want £192,000. How much is price in British pounds? Calculate a cross rate to state the French quote in pounds. Use the exchange rates in Table 18-1. Suppose the American company in our example wants to import 500 sweaters that cost a total of 35,000 in pounds, written as £ 35,000 (where L is used like the US $) How many pounds will it have to buy?

please use this example to answer the question.

Solution; noting that british currency is listed under UK for united kinddom, the exchange rate table indicates that L1 is worth $1.6504, so that American firm will have to exchange

L35,000 x $1.6504/pound=$57,764

To pay for the sweaters. In other words, the cost of the purchase is expected to be $57,764. Alternatively, the L35,000 could be divided by .6059 pounds per dollar to reach the same result (within rouding error).

Explanation / Answer

Price in british pound for Americans quote = 175000/1.6504 = £ 106034.90

Cross rate for french rate : 1 pound = $175000/192000

1 pound = $0.9115

Now if american company wants to buy sweater worth pound 35000 it has to buy 35000*0.9115 pound = 31902.50 pounds.

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