Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell

Question

Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell the S-type in the UK with a 20% margin for a price of £27,363. Today these cars are available in the US for $55,000 which is the UK price multiplied by the current exchange rate of $2.01/£. Jaguar has committed to keeping the US price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/£, and Jaguar has not hedged against currency changes, what is the amount the company will receive in pounds at the new exchange rate?

Explanation / Answer

Jaguar selling price in US dollar $55,000
Currency conversion rate i.e.
1 pound = $2.15 so $55,000 = $55,000 / $2.15 = GBP 25,581

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