Question

Wildcat Inc. a U.S. based exporter that exclusively sells its products in Australia. Wildcat, expects to sell 2,000 units at a price of AUD 10.00 per unit. Wildcat currently produces in Phoenix, Arizona and has a variable production cost of USD 8.10 per unit, and total fixed costs of USD 5,000. What is Wildcat’s FX operating exposure?

Answer 1

Answer:

1.

AUD (Austrillian Dollar), USD (United States Dollar)

As per today's rate USD/AUD it is 1 dollar equals to 1.37 acres (i.e 1AUD = 0.728448US$)

Note: Currency rates keep fluction based on market situation

Here Wildcat Inc. a U.S. expects to sell 2.000 units at a price of AUD 10.00 per unit totalling to amount 20,000 AUD

i.e, = 2,000 units * 10AU$ = 20,000 Australlian Dollar

So converting 20,000 Australlian dollars to USD comes to $14,568.96 (20,000AU$*)

Here we have Wildcat Inc. selling cost of $14,568.96

2.

Wildcat Inc. production in Phoenix, Arizona has variabe cost of $16,200 (2,000 units * USD 8.10) and fixed cost of USD 5,000

So total operaing expenses of wildcat Inc is;

=Variable cost + Fixed cost

=$16,200 + $ 5,000

=$21,200

3.

Operating exposure equals to:

= Selling cost - Operating Expenses

= $14,568..96 - $21,200

= -$6631.04

Wildcat’s FX operating exposure is -$6631.04