A U.S. firm sells merchandise today to a British company for £100,000. The current exchange rate is $2.03/£ , the account is payable in three months, and the firm chooses to avoid any heding techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to $2.01/£ the U.S. firm will realize a ________ of ________.

Question

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The U.S. firm will realize a loss of $2,000. Initially, the firm expected to receive $203,000 (100,000 * 2.03). If the exchange rate changes to $2.01/£, the firm will receive $201,000 (100,000 * 2.01), resulting in a loss of $2,000.

A US Firm Sells Merchandise Today to a British Company for for £100,000