Problem 7 Currently (May 5 2023) 1 US $ is equal to approximately 34 Thai Baht. Your firm, based in the US is negotiating a contract to sell industrial equipment to Thai manufacturing firms. The list price of the equipment is US $ is 400,000. The Thai manufacturers are stating that the contract must be listed Thai Bhat and that payment will not take place until the equipment is delivered which is expected to be four months from the date that the contract is signed. The cost to manufacture the equipment for the US firm is $280,000 so the normal gross profit on the sale if made to a US firm would be $120,000 (GP $)/ $400,000 = 30%. (GP %).

GP = Gross Profit

Please answer the following:

If the exchange rate does not change over the next four months calculate the final GP$ and GP % on the sale.

If the exchange rate moves to 1 US $ = 38 Thai Bhat calculate the final GP$ and GP% on the sale. In this case, did the Thai Bhat appreciate or depreciate relative to the US $?

3 If the exchange rate moves to 1 US $ = 32 Thai Bhat calculate the final GP$ and GP% on the sale. In this case, did the Thai Bhat appreciate or depreciate relative to the US $

4. Identify two actions relative to the sale agreement/contract that the US firm could take to reduce the exposure to currency translation risk.