QUESTION #$4$ Foreign Exchange Rate

Primo Caf$$ has a long relationship with Techno$-$Gadgets Limited to produce the temperature and pressure gauges that go into the Caffissimo. However, Techno$-$Gadgets recently underwent an ownership change and since then, the quality of their products has declined. $$lise$,$ Primo$$s CEO and founder, is in negotiations with Techno$-$Gadgets to resolve the issue, but, in the meantime, you have been tasked with looking for new potential suppliers for this strategic product.

Your search has led you to two very good companies: Kyoto Techtonics Inc. and Allesgute Engineering GmbH$.$ Kyoto Tectonics Inc. is located in Japan and quotes you a price of $1,500(1,500$ Japanese Yen$)$ per gauge. Allesgute Engineering GmbH is located in Germany and quotes you a price of $18\mathrm{.}00(18$ Euro$)$ per gauge. In order to help determine which company has the best cost structure, you have collected the following information.

$$ Current USD$/$JPY exchange rate: $$1=110$

$$ Expected USD$/$JPY exchange rate in six months: $$1=90$

$$ Current USD$/$EUR exchange rate: $$1=0\mathrm{.}90$

$$ Expected USD$/$EUR exchange rate in six months: $$1=1\mathrm{.}10$

Additional Costs Kyoto Tectonics Inc. Allesgute Engineering GmbH

Shipping to port of export $ $6\mathrm{.}20$ $ $6\mathrm{.}10$

Ocean freight $ $8\mathrm{.}25$ $ $7\mathrm{.}50$

Duties on imports $ $1\mathrm{.}80$ $ $1\mathrm{.}30$

Transportation to warehouse $ $3\mathrm{.}75$ $ $3\mathrm{.}00$

Marco wants to move quickly and lock up a contract with Allesgute Engineering immediately. $$lise is inclined to give Techno$-$Gadgets six months to resolve its issues. At that point, she is interested in inking a deal with Kyoto Tectonics.

Apply exchange rate calculations as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam.

$1.$ Calculate the current and future total cost for each supplier in USD in the excel file provided. $$ EXCEL

$2.$ Marco wants a recommendation on what Primo Caf$$ should do$.$ Given the information above $$ and what you know about the product you are sourcing $$ what would you recommend? Why?

$3.$ Marco and Elise are discussing international purchases and exchange rates. Elise thinks that there is too much risk in purchasing internationally, because Primo Caf$$ will not have control of pricing due to exchange rate fluctuations. Based on the materials in MGT $337,$ Week $8,$ which type of currency risk is present in the relationship with Primo Caf$$ and its potential supplier $($Kyoto or Allesgute$)?$ Why?