a. If the exchange rate changes quickly to 9 ARS/USS, what will be the dollar cost...

 

Transcribed Image Text:

a. If the exchange rate changes quickly to 9 ARS/USS, what will be the dollar cost of 3 months of imports (medical equipment) to the Argentine importer? The Allowable Range of Exchange Rates (ARS/US$) Spot Rate (ARS/USS) Purchase of Medical Equipment (in Argentine Peso) Bottom Top 5.00 7.50 6.25 US $ Cost of Purchase of Medical Equipment at Spot ARS Exchange Rate 15,000,000 15,000,000/6.25 ARS/USS= US $ 2,400,000 Outside of this range the trading partners will share the extra risk of the exchange rate between the Argentine peso (ARS) and US. dollar (US $) equally. New Exchange Rate (ARS/USS) Allowable Top Exchange Rates (ARS/USS) Difference to be Shared (ARS/USS) US Exporter's Share (1.5/2) 9.00 7.50 1.50 0.75 0.75 Argentine Importer's Share (1.5/2) Therefore, the Argentine importer will have the following effective exchange rate after risk sharing: Top Range (ARS/USS) Argentine Importer's Share (1.5/2) 7.50 0.75 Effective Total of Risk Sharing (ARS/USS) 8.25 Assuming that 3 months imports will still be 15,000,000 (in Argentine peso) Effective Exchange Rate for Argentine 8.25 Importer (ARS/USS) Actual Exchange Rate (ARS/US S) 9.00 a. If the exchange rate changes quickly to 9 ARS/USS, what will be the dollar cost of 3 months of imports (medical equipment) to the Argentine importer? The Allowable Range of Exchange Rates (ARS/US$) Spot Rate (ARS/USS) Purchase of Medical Equipment (in Argentine Peso) Bottom Top 5.00 7.50 6.25 US $ Cost of Purchase of Medical Equipment at Spot ARS Exchange Rate 15,000,000 15,000,000/6.25 ARS/USS= US $ 2,400,000 Outside of this range the trading partners will share the extra risk of the exchange rate between the Argentine peso (ARS) and US. dollar (US $) equally. New Exchange Rate (ARS/USS) Allowable Top Exchange Rates (ARS/USS) Difference to be Shared (ARS/USS) US Exporter's Share (1.5/2) 9.00 7.50 1.50 0.75 0.75 Argentine Importer's Share (1.5/2) Therefore, the Argentine importer will have the following effective exchange rate after risk sharing: Top Range (ARS/USS) Argentine Importer's Share (1.5/2) 7.50 0.75 Effective Total of Risk Sharing (ARS/USS) 8.25 Assuming that 3 months imports will still be 15,000,000 (in Argentine peso) Effective Exchange Rate for Argentine 8.25 Importer (ARS/USS) Actual Exchange Rate (ARS/US S) 9.00

Answer rating: 100% (QA)

The effective exchange rate for the Argentine importer con... View the full answer