University:
Eastern Kentucky University
Course:
FIN 330 | Principles of International Finance
Academic year:

2021
Views:

324

Pages:

2
Author:

Kaiden Murphy

RUNNING HEADER: MODULE 4 ASSIGNMENT In these three scenarios presented to us below, we will be looking at the downfalls and benefits of foreign exchange. In each scenario we will be using this information: The company is obligated to sell 4,000 units for 1.25 million MYR. To breakeven on each of those units the company must make $90 in U.S dollars per unit. In the first scenario the current exchange rate is $1 USD = 3.52 MYR. When we used that rate, we got $89 USD per unit. That is under the $90 U.S dollars per unit that was needed to breakeven. In scenario one, the company loses approximately $4,000. See below: Scenario #1: 1.25M MYR/3.52 = $355,114 USD/4,000(units) = $89 USD In the second scenario we have a projected exchange rate from January 1st which is $1 USD = 3.13 MYR. In the second scenario the exchange rate comes to $100 USD per unit which is a $10 profit per unit, totaling about a $36,000 profit. See below: Scenario #2: 1.25M MYR/3.13 = $399,361 USD/4,000(units) = $100 USD The third scenario given involves not converting the 1.25M MYR to USD. Instead, we can use that money to purchase raw materials. This scenario could be more beneficial for the company, and it is looking better than the first scenario. That being said, there could be some potential bumps in this plan. Because the manufacturing company is in the United States, all raw materials would have to be shipped to the United States from Malaysia. Having to ship the raw materials could cost the company more money. It could potentially be cheaper to just purchase the raw materials locally in Malaysia. Another factor is when determining which company to purchase these raw materials from would take away a lot of time from producing more products. 2 RUNNING HEADER: MODULE 4 ASSIGNMENT After analyzing each of the given scenarios, I would have to recommend the second scenario. It provides us with a profit of $36,000 USD. We can use that money to buy raw materials, which will in turn cut the cost of shipping and saves us time to make products. 3

Assignment Foreign Exchange

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