Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2.00 U. S. dollars. This year the exchange rate is 1£ = 1.82 U. S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the U. S. dollar gain or loss in inventory value as a result of the change in exchange rates?

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Business

Kendall Pugh

10 November, 07:41

Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2.00 U. S. dollars. This year the exchange rate is 1£ = 1.82 U. S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the U. S. dollar gain or loss in inventory value as a result of the change in exchange rates?

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Bronson Cooley · Answer 1

Dollar Loss in value of inventory=$43,200

Explanation:

The movement in exchange rate from $2 to $1.82 per pound represents a depreciation in the value of Pounds and therefore a depreciation in the value of the inventory.

The loss in value of the inventory would be difference between the Dollar value a year ago and now. This will be done as follows:

Dollar value of inventory a year ago = 240,000 * $2.00 = 480000

Dollar Value of inventory now = 240,000 * $1.82 = 436,800

Dollar Loss in value of inventory = $480000 - 436,800 = $43,200

Dollar Loss in value of inventory=$43,200