Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.2839 S$/US$. You have just placed an order for 25,000 motherboards at a cost to you of 235.50 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $200 each.

What is your profit at the current exchange rate?

What is your profit if the exchange rate goes up by 10 percent?

What is your profit if the exchange rate goes down by 10 percent?

What percentage rise or fall does this represent in terms of the Singapore dollar versus the U. S. dollar?

Profit at the current exchange rate is $414,362.50.

Profit if the exchange rate goes up by 10 percent is $831,238.63.

(Loss) if the exchange rate goes down by 10 percent is ($95,152.79).

Percentage rise appreciates by 12.84% and percentage fall depreciates by 12.84% in terms of the Singapore dollar versus the U. S. dollar

Explanation:

Exchange Rate = 1.2839 S$/US$

Total Order = 25,000 motherboards

Cost Price = S$235.50 / motherboard

Sale Price = $200 / motherboard

(1) At Current Exchange the profit can be calculated as follows;

Cost Price per unit in US$ = S$235.50 / 1.2839 S$/US$

Cost Price per unit in US$ = $183.43

Profit per unit in US$ = Sale Price per unit - Cost Price per unit

Profit per unit in US$ = $200 - $183.43

Profit per unit in US$ = $16.57

Total Profit = Profit per unit in US$ x Total Order

Total Profit = $16.57 x 25,000

Total Profit = $414,362.50

(2) If the exchange rate goes up by 10%, the new exchange rate can be calculated as follows;

Up Exchange Rate = 1.2839 S$/US$ x (1 + 10%)

Up Exchange Rate = 1.2839 S$/US$ x (1 + 0.10)

Up Exchange Rate = 1.2839 S$/US$ x (1.10)

Up Exchange Rate = 1.41229 S$/US$

Cost Price per unit in US$ = S$235.50 / 1.41229 S$/US$

Cost Price per unit in US$ = $166.75

Profit per unit in US$ = Sale Price per unit - Cost Price per unit

Profit per unit in US$ = $200 - 166.75

Profit per unit in US$ = $33.25

Total Profit = Profit per unit in US$ x Total Order

Total Profit = $33.25 x 25,000

Total Profit = $831,238.63

(3) If the exchange rate goes down by 10%, the new exchange rate can be calculated as follows;

Down Exchange Rate = 1.2839 S$/US$ x (1 - 10%)

Down Exchange Rate = 1.2839 S$/US$ x (1 - 0.10)

Down Exchange Rate = 1.2839 S$/US$ x (0.90)

Down Exchange Rate = 1.15551 S$/US$

Cost Price per unit in US$ = S$235.50 / 1.15551 S$/US$

Cost Price per unit in US$ = $203.81

Profit / (Loss) per unit in US$ = Sale Price per unit - Cost Price per unit

Profit / (Loss) per unit in US$ = $200 - 203.81

Profit / (Loss) per unit in US$ = ($3.81)

Total Profit / (Loss) = Profit / (Loss) per unit in US$ x Total Order

Total Profit / (Loss) = ($3.81) x 25,000

Total Profit / (Loss) = ($95,152.79)

(4) The percentage rise or fall is the rate at which the value of currency is appreciated or (depreciated) over some period of time.

Old Exchange Rate = 1.2839 S$/US

New Exchange Rate = 1.41229 S$/US$

as calculated above when there was a rise in exchange rate of 10%, can be calculated as follows;

(New Exchange Rate - Old Exchange Rate) x 100%

(1.41229 - 1.2839) x 100%

(0.12839) x 100%

+12.84%

As calculated above is the positive value of US$, in terms of S$, it means that US$ is appreciated by 12.84% with respect to S$, when there is rise in exchange rate by 10%

Old Exchange Rate = 1.2839 S$/US

New Exchange Rate = 1.15551 S$/US$

as calculated above when there was a fall in exchange rate of 10%, can be calculated as follows;

(New Exchange Rate - Old Exchange Rate) x 100%

(1.15551 - 1.2839) x 100%

(-0.12839) x 100%

-12.84%

As calculated above is the negative value of US$, in terms of S$, it means that US$ is depreciated by 12.84% with respect to S$, when there is fall in exchange rate of 10%.