Question

Transaction exposure International? Products, Inc. has ordered 14,000 leather coats from Argentina for delivery in 6 months. The contracted cost of a coat is 148

pesos. International Products will pay for the coats upon delivery. The current indirect exchange rate is? $1 for

1.3106 pesos. The anticipated inflation rate is 3.2?% in the United States and 7.8% in Argentina. In U.S.? dollars, how much will the 14,000

leather coats cost International Products at?delivery?

In U.S.? dollars, how much will the 14,000 leather coats cost International Products at? delivery?

Answer 1

Quantity		14,000
Rate (in Pesos)		148
Amount to be paid (in Pesos)		2,072,000.00
Current exchange Rate		1.3106
Anticipated inflation in US		3.20%
Anticipated inflation in Argentina		7.80%
Anticipated inflation in US for 6 months		1.60%	half of annual inflaiton
Anticipated inflation in Argentina for 6 months		3.90%	half of annual inflaiton
Assuming purchasing power parity, forward exchange rate at the time of
delivery (after 6 months) can be calcualted as =
Future spot rate=	Current spot rate * (1+ local inflation)/(1+ foreign inflaiton)
	1.384
Price to be paid in future =	Agreed price in pesos / exchange rate
	1,497,650.00