Severus Co. has to pay 5 million Canadian dollars for supplies it recently received from Canada. Today, the Canadian dollar has appreciated by 2 percent against the U.S. dollar. Severus has determined that whenever the Canadian dollar appreciates against the U.S. dollar by more than 1 percent, it experiences a reversal of 40 percent of that change on the following day. Based on this information, the Canadian dollar is expected to ____ tomorrow, and Severus would prefer to make payment ____.

Question

Severus Co. has to pay 5 million Canadian dollars for supplies it recently received from Canada. Today, the Canadian dollar has appreciated by 2 percent against the U.S. dollar. Severus has determined that whenever the Canadian dollar appreciates against the U.S. dollar by more than 1 percent, it experiences a reversal of 40 percent of that change on the following day. Based on this information, the Canadian dollar is expected to ____ tomorrow, and Severus would prefer to make payment ____.​

Quizplus · Accepted Answer

- The current payment is in Canadian dollars, so Severus Co. needs to convert Canadian dollars to U.S. dollars.
- The Canadian dollar has appreciated by 2%, so Severus Co. needs to pay more in U.S. dollars than it would have yesterday.
- Based on the given information, if the Canadian dollar appreciates more than 1%, the reversal will be 40% of that change on the following day. This means that if the Canadian dollar appreciates today by 1.5%, then tomorrow it will depreciate by 0.6% (.015 * 0.4).
- Therefore, Severus Co. would prefer to wait until tomorrow to make payment, as the Canadian dollar is expected to depreciate by 0.8% (.015 - 0.6) and they will pay less in U.S. dollars.