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CHAPTER 21
S&S AIR GOES INTERNATIONAL
At the current exchange rate of $1.37/€, the EBT in euros will be converted to dollars in the amount
of:
S&S Air has production costs equal to 80 percent of dollar sales at this exchange rate. The total sales
in dollars are:
And the production costs are:
So, the profit at the current exchange rate is:
If the exchange rate changes to $1.03/€, the euros will convert to:
Since the production costs are in dollars, the profit at this exchange rate will be:
CHAPTER 21 C-2
The break-even exchange rate is the exchange rate that will allow the after-commission costs in
euros to convert to a dollar amount that covers the production costs, so:
4. The company could use options, futures, or forwards. The downside to all three hedging vehicles is
5. At the current exchange rate, the company will make a profit unless the exchange rate moves
CHAPTER 25 C-3
