Question

Suppose International Retailer, Ltd. (IRL) had inventory in Britain valued at 275,000 pounds one year ago. The exchange rate for dollars to pounds was 1 pound = 2 U.S. dollars. This year the exchange rate is 1 pound = 1.82 U.S. dollars. The inventory in Britain is still valued at 275,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

Solution:

As per the Information given in the question we have :

Inventory in Britain valued in pounds : £ 275,000

Exchange rate between Pound and U.S. dollars one year ago is 1 pound = 2 U.S. dollars.

Exchange rate between Pound and U.S. dollars this year is 1 pound = 1.82 U.S. dollars.

Value of Inventory one year ago in U.S. dollars = £ 275,000 * $ 2 = $ 550,000

Value of Inventory thus year in U.S. dollars = £ 275,000 * $ 1.82 = $ 500,500

The loss in inventory value in U.S. dollars as a result of the change in exchange rates

= $ 500,500 - $ 550,000 = - $ 49,500

( Since the Inventory ( after applying exchange rate ) is valued at a lower amount in U.S. dollars in the Current year as compared to a year ago )

Thus the solution is = - $ 49,500