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A US based computer manufacture produces and sells laptops in South America thro

ID: 2803924 • Letter: A

Question

A US based computer manufacture produces and sells laptops in South America through two manufacturing facilities: one in Argentina and the other in Brazil. The following applies:

Argentina

Brazil

Investment price

200 million US$

200 million US$

Cost per Laptop

900 pesos

600 reals

Price per Laptop

1200 pesos

800 reals

Projected Annual Earnings

150 million pesos

100 million reals

Exchange Rate

Pesos 3 / US$

Reals 2/US$

If Brazil real depreciates 20% against the US$, what is the new pesos/real exchange rate?

1.2

1.25

1.88

1.9

Argentina

Brazil

Investment price

200 million US$

200 million US$

Cost per Laptop

900 pesos

600 reals

Price per Laptop

1200 pesos

800 reals

Projected Annual Earnings

150 million pesos

100 million reals

Exchange Rate

Pesos 3 / US$

Reals 2/US$

Explanation / Answer

Pesos / Real = (Pesos / US$) / (Reals / US$)

Current rate = 3 / 2 = 1.5

New real rate = 2*(1+20%) = 2.4

New exchange rate = 3/2.4 = 1.25 (Option B)

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