Homework SoursePART ONE Based on the current exchange rate of 068 and your
PART ONE Based on the current exchange rate of 0.68 £/$ and your target revenue of $5 per six-pack, what is the price you charge for your beer in England?
A)£ 5.88
B)£ 7.35
C)£ 2.72
D)£ 3.40
PART TWO: Suppose that the U.S. dollar appreciates against the British Pound and the new exchange rate is 0.8 £/$. Calculate the new price you charge for your beer in England. Do you expect your sales volume to rise or decline?
A. £ 3.20; sales should rise
B. £ 4.00; sales should decline
C. £ 3.20; sales should decline
PART THREE Suppose that instead of the dollar appreciating as it did before, the dollar weakens against the Pound, causing the exchange rate to fall from the original value of 0.68 £/$, down to 0.5 £/$. Calculate the new price you charge for your beer in England. Do you expect your sales volume to rise or decline (as compared to the 0.68 £/$ exchange rate)?
A) £ 2.00; sales should rise
B) £ 2.50; sales should rise
C) £ 2.50; sales should decline
D)£ 2.00; sales should decline
| Suppose that you own a brewery in the U.S that produces high quality pale ale beer. Assume that it costs you $4 to produce a six-pack and ship it to Great Britain, and that your target revenue is $5 per six-pack. Finally assume that the current exchange rate is 0.68 British Pounds (£)/U.S. dollar ($). |
Solution
1)
the price you charge for your beer in England = $5*0.68 = £ 3.40
2)
New price = $5*0.8 = £ 4.00
sales should decline as it will become expensive for the England consumers as now they will have to pay £ 4.00 against £ 3.40 paid earlier.
3)
New price = $5*0.5 = £ 2.50
sales should rise as it will become cheaper for the England consumers as now they will have to pay £ 2.50 against £ 3.40 paid earlier.
