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Jetta production cost in 2002 and 2003 was 14,000 Euro per Jetta. Jetta sold in US...

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Finance

Jetta production cost in 2002 and 2003 was 14,000 Euro perJetta. Jetta sold in US at $15,000 in 2002 and 2003. Forward hedgeexchange rate was 1 $/Euro in 2003. Rate without hedge (i.e. marketexchange rate) was 1.25$/Euro in 2003. If 12,000 Jetta were sold inUS, in 2003, by 60% forward hedge and 40% not hedged. What would beprofits or loss from sales of 12,000 Jetta in US?  

Answer & Explanation Solved by verified expert
3.9 Ratings (707 Votes)
First we calculate selling price per Jetta in Euro in 2003 Total selling price in dollars quantity soldselling price per quantity 1200015000 180000000 now we convert 180000000 in to Euro using forward rate    See Answer
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Jetta production cost in 2002 and 2003 was 14,000 Euro perJetta. Jetta sold in US at $15,000 in 2002 and 2003. Forward hedgeexchange rate was 1 $/Euro in 2003. Rate without hedge (i.e. marketexchange rate) was 1.25$/Euro in 2003. If 12,000 Jetta were sold inUS, in 2003, by 60% forward hedge and 40% not hedged. What would beprofits or loss from sales of 12,000 Jetta in US?  

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