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 $55,000 which is the UK price multiplied by the current exchange rate of $2.01/£. Jaguar has committed to keeping the US price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/£, and Jaguar has not hedged against currency changes, what is the percentage margin the company will realize given the new exchange rate?

Question

Quizplus · Accepted Answer

With the new exchange rate of $2.15/£, the UK price in pounds becomes $55,000 / 2.15 = £25,581.40. The margin is calculated as (Selling Price - Cost) / Selling Price = (£25,581.40 - £22,803) / £25,581.40 = 10.9%.

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