International Products, Inc. has ordered 20,000 leather coats from Argentina for delivery in 12 months. The...
International Products, Inc. has ordered 20,000 leather coats from Argentina for delivery in 12 months. The contracted cost of a coat is 139 pesos. International Products will pay for the coats upon delivery. The current indirect exchange rate is $1 for 1.2508 pesos. The anticipated inflation rate is 4.2% in the United States and 7.8% in Argentina. In U.S. dollars, how much will the
20,000 leather coats cost International Products at delivery?
Homework Answers
Forward rate Spot Rate*(1+Inflation Rate Argentina)/(1+Inflation rate dollar)
= 1.2508(1+7.8%)/(1+4.2%)
= 1.2940 pesos/Dollar
Amount to be paid = 20,000*139 = Pesos 2,780,000
Hence, cost to International Products in Dollars = 2,780,000/1.2940
= $2,148,377.13
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