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 US for $44,600 which is the UK price multiplied by the current exchange rate of $1.63/£. Jaguar has committed to keeping the US price at $44,600 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $1.75/£, and Jaguar has not hedged against currency changes, what is the amount the company will receive in pounds at the new exchange rate?

Question

Quizplus · Accepted Answer

If the UK pound appreciates against the USD to an exchange rate of $1.75/£, then the US price of $44,600 is equivalent to £25,485.71 (£44,600 / $1.75 per £). This is the amount Jaguar will receive in pounds at the new exchange rate.

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