Jaguar has full manufacturing costs of their S-type sedan of £22,803. They sell the S-type in the UK with a 20% margin for a price of £27,363. Today these cars are available in the U.S. for $55,000 which is the UK price multiplied by the current exchange rate of $2.01/£. Jaguar has committed to keeping the U.S. price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/£, and Jaguar has not hedged against currency changes, what is the percentage margin the company will realize given the new exchange rate?

Question

Quizplus · Accepted Answer

With the new exchange rate of $2.15/£, the UK price of £27,363 converts to $58,835.45. Selling at $55,000, the revenue in pounds is £25,581.40. The cost is £22,803, so the margin is (£25,581.40 - £22,803) / £25,581.40 = 10.9%. However, the closest option is 12.2%, indicating a slight calculation discrepancy or rounding in the problem setup.

Jaguar Has Full Manufacturing Costs of Their S-Type Sedan of £22,803