Assume you manage a firm that faces transaction exposure.Your company manufactures and sells bicycles around the world.You have just completed a large sale of bicycles to a chain of stores in Australia and received a promised payment of 250 AUD per tricycle.You have already sold 6,000 bicycles and are now awaiting payment which you expect to receive in 90 days.The exchange rate today is 1.25 AUD per USD.Over the next ninety days,the indirect exchange rate unexpectedly moves from 1.25 AUD to 1.22 AUD.What is the increase in domestic revenue due to this unexpected move in the exchange rate?

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The initial exchange rate is 1.25 AUD/USD, and it changes to 1.22 AUD/USD. The payment expected is 250 AUD per tricycle for 6,000 tricycles, totaling 1,500,000 AUD. Initially, at 1.25 AUD/USD, this would convert to 1,200,000 USD. At 1.22 AUD/USD, it converts to 1,229,508 USD. The increase in domestic revenue is 1,229,508 USD - 1,200,000 USD = 29,508 USD.

Assume You Manage a Firm That Faces Transaction Exposure