NorthRim Inc.(NRI),imports extreme condition outdoor wear and equipment from The Allofit Territories Company (ATC)located in Canada.With the steady decline of the U.S dollar against the Canadian dollar NRI is finding a continued relationship with ATC to be an increasingly difficult proposition.In response to NRI's request,ATC has proposed the following risk-sharing arrangement.First,set the current spot rate of C$1.20/$ as the base rate.As long as spot rates stay within 5% (up or down)NRI will pay at the base rate.Any rate outside of the 5% range,ATC will share equally with NRI the difference between the spot rate and the base rate.If NRI had a payable of C$100,000 due today and the current spot rate were C$1.17/$,how much does would NRI owe in U.S.dollars?

Question

Quizplus · Accepted Answer

The current spot rate of C$1.17/$ is within the 5% range of the base rate C$1.20/$. Therefore, NRI pays at the base rate. C$100,000 / 1.20 = $83,333.