Apollo Fashions, a clothing importer, signed a contract to buy tweed sports jackets from an English manufacturer for £100 each. At the time the contract was signed a British pound was worth $1.52. Apollo immediately entered contracts to sell 5,000 jackets to retailers at a price of $200 each. When Apollo paid for the jackets the exchange rate was $1.45 to the pound. What was Apollo's exchange rate gain or (loss)on the transaction?

Question

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Apollo initially expected to pay $152 per jacket (£100 x $1.52). When the exchange rate changed to $1.45, Apollo paid $145 per jacket (£100 x $1.45). The difference is $7 per jacket. For 5,000 jackets, the gain is $35,000 (5,000 x $7).

Apollo Fashions, a Clothing Importer, Signed a Contract to Buy