Hull Importing Company is a US-based company that imports small gift items and sells them to retail
Question:
Hull Importing Company is a US-based company that imports small gift items and sells them to retail gift shops throughout the United States. Approximately half of the value of Hull's purchases comes from the UK, while the remaining purchases are from Mexico. Imported goods are denominated in the currency of the country where they are produced. Hull does not normally cover your purchases.
In previous years, the Mexican peso and the pound fluctuated substantially against the dollar (although not to the same degree). Hull's spending is directly tied to these currency values because all of its products are imported. It has been successful because imported gift items are unique and appealing to American consumers. However, Hull has not been able to pass on the higher costs (due to a weaker dollar) to its consumers, because consumers would then switch to different gift items sold in other stores.
Required
a. Hull expects Mexico's central bank to raise interest rates and Mexico's inflation will not be affected. Please provide information on how the value of the peso may change and how Hull's earnings would be affected as a result.
b. Hull closely monitors government intervention by the Bank of England (the British central bank). He supposes that the Bank of England intervenes to strengthen the value of the pound against the dollar by 5 percent. Would this have a favorable or unfavorable effect on Hull's business?
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen