The defendant purchased sewing machines from a Swiss manufacturer in Swiss francs. The machines were imported into the United States for sale to distributors. The contract with the distributor in this case allowed the importer to pass on cost increases to the distributor. When the Swiss franc rose "precipitously" in value against the dollar, the importer imposed a 10 percent surcharge to protect itself. Eventually the increased value of the Swiss franc doubled the importer's costs. The distributor did not feel that this additional "cost" fell under the terms in the contract and sued to have the contract enforced at its original price. The importer argued that increased costs due to currency fluctuations could be passed on to the distributor as any other "cost." It also argued that the exchange risk had rendered performance of the contract commercially impracticable. Just prior to the contract the dollar had fallen 7 percent on the franc. The district court interpreted the contract terms to find for the distributor, and the importer appealed.
1. What were the importer's two arguments in this case? How did the court address each?
2. What is the effect of the fact that just prior to executing the contract, the dollar had fallen by 7 percent against the Swiss franc?
3. In any international business transaction, which party assumes the exchange rate risk?