A year ago, MC Hammer Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates?
A) -$240,000
B) -$ 43,200
C) $ 0
D) $ 43,200
E) $ 47,473

Question

Quizplus · Accepted Answer

First, we need to convert the value of inventory in pounds to U.S. dollars using the old exchange rate: 
240,000 pounds x 2 dollars/pound = $480,000 
Then, we need to convert the value using the new exchange rate: 
240,000 pounds x 1.82 dollars/pound = $436,800 
The difference between the two values is: 
$480,000 - $436,800 = $43,200 
Therefore, the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates is a loss of $43,200.

A Year Ago, MC Hammer Company Had Inventory in Britain