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Harmony is a South African mining company that exports 18 ounces of gold to the U.S....

Harmony is a South African mining company that exports 18 ounces of gold to the U.S. Gold is priced in US dollars but Harmony's workers are paid in rand ( the currency of South Africa). The current price of gold is 1,647 dollars per ounce. The current exchange rate is 17 rand (R) per $1. Harmonys current mining costs are R14 per ounce. Expected one-year inflation rates are 1 in the U.S. and 5 in South Africa (in%). What is Harmonys current level of proitability?

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Answer #1

Inorder to calculate the current profitability we need to calculate the export price in Rand.

Current exchange rate = R17 / $

Price of gold per ounce in Rand = 17 * 1647 = 27999 Rand

( Exchange rate is multiplied bythe amount as the base currency and the currency to be converted are in same currency)

Mining costs per ounce = 14 Rand

Profitibility = Current price per ounce - mining costs per ounce = 27999 - 14 = 27985 Rand per ounce

Total Profitability = 27985 * 18 = 503,730 Rand.

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