Question

Premier Automotive of the United States and BMW of Germany sign a five year contract for BMW to supply automobiles and accept payment in U.S. dollars on the following terms: If the spot rate on the day of invoice is between USD1.10/EUR and USD1.16/EUR, BMW will use the actual spot rate to invoice Premier. Else, the two parties will share the currency movement equally. If BMW delivers an order of EUR 10,000,000 on the day when the exchange rate is USD1.20/EUR. How much will Premier Automobiles be required to pay?

a. USD 11,800,000 b. USD 12,000,000 c. USD 11,000,000 d. EUR 10,000,000 e. USD 11,600,000

Answer 1