Small Business Dilemma, page 130, text Read the case and write an executive summ

Question

Small Business Dilemma, page 130, text Read the case and write an executive summary on the case, including answers to the following questions Assessment by the Sports Exports Company of Factors that Affect the British Pound's Value Because the Sports Exports Company (a U.S. firm) receives payments in British pounds every month and converts those pounds into dollars, it needs to closely monitor the value of the British pound in the future. Jim Logan, owner of the Sports Exports company, expects that inflation will rise substantially in the United Kingdom, while inflation in the United States will remain low. He also expects that the interest rates in both countries will rise by about the same amount 1. Given Jim's expectation, forecast whether the pound will appreciate or depreciate against the dollar over time 2. Given Jim's expectation, will the Sports Exports Company be favorably or unfavorably affected by the future changes in the value of the pound?

Explanation / Answer

1. Given Jim's Expectation and Interest covered Parity theory, the United Kingdom's pound will depreciate its value against Dollar over time because Interest rate in United kingdom is more than interest rate in United States.

2. Given Jim's Expectation, As the Pound value is going to depreciate its value against dollar. The Sports Exports Company will be unfavourable affected by the future change in value of pound because of increase in interest rate in United kingdom than interest rate in United States, the Sports exports company will receive less amount in dollar value

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