As Aa 2. Foreign exchange rate quotations An exchange rate is the price of one c

Question

As Aa 2. Foreign exchange rate quotations An exchange rate is the price of one country's currency expressed in another country's currency Suppose an American investor is given the current exchange rates in the following table. The listed quotations are indirect quotations stated in American terms. British pound (E) Euro () Australian dollar (AUS) Exchange Rate $1.879/pound $1.477/euro $0.876/Australian doilar The British pound can purchase[ Australian 0-3730 0.4895 0.4429 0.4662 dollars. Magic Milling Company is a u.S-based firm that produces stereos in Germany at a cost of 124 (including production and transportation costs) and sells them in England for E92. Based on the exchange rate table given in the preceding question, what is Mogic Miling Company's doller profit for each unit sold? O -$10.28 O -$11.3 -$10.79 $12.34 O A W INS DEL BACK

Explanation / Answer

For the first one, $1.879 USD to GBP1 is provided and $0.876 USD to 1 AUD is provided hence for indirect quotation, then 1 GBP can purchase AUD 0.4662 (0.876/1.879)

For second one, it is mentioned as a US based firm which is producing stereos in Germany where the operating currency si EURO. For cost of Euro 124, the equivalent USD will be $183.148 (EURO 124 x $1.477).

The sales is happening in England where the currency is GBP. Pounds 92 will equal to USD 172.868 (GBP 92 x $1.879)

Net Margin is = US $172.868 - $183.148 = -10.28

This is called as Indirect quotation.

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