Consider a U.S.importer desiring to purchase merchandise from a Dutch exporter invoiced in euros,at a cost of €160,000.The U.S.importer will contact his U.S.bank (where,of course,he has an account denominated in U.S.dollars)and inquire about the exchange rate,which the bank quotes as €0.6250/$1.00.The importer accepts this price,so his bank will proceed to ________ the importer's account in the amount of ________.

Question

Quizplus · Accepted Answer

The U.S. importer needs to convert €160,000 into U.S. dollars. Since the exchange rate is quoted as €0.6250/$1.00, the importer needs to pay $1.60 for every euro. Therefore, the total cost will be $256,000 (€160,000 x $1.60), which means the importer's account will be debited for $256,000.