Yohe Telecommunications is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Maitland, Florida, Yohe usually must buy its raw materials in several different foreign countries using several different foreign currencies. The matter is further complicated because Yohe usually sells its products in other foreign countries. One product in particular, the SY-20 radio transmitter, draws its principal components, Component X, Component Y, and Component Z, from Switzerland, France, and England, respectively. Specifically, Component X costs 165 Swiss francs, Component Y costs 20 Euros, and Component Z costs 105 British pounds. The largest market for the SY-20 is in Japan, where it sells for 38,000 Japanese yen. Naturally, Yohe is intimately concerned with economic conditions that could adversely affect dollar exchange rates. You will find the three accompanying tables useful for this problem.
a.How much, in dollars, does it cost for Yohe to produce the SY-20? What is the dollar sale price of the SY-20?
b.What is the dollar profit that Yohe makes on the sale of the SY-20?
- If the U.S. dollar were to weaken by 10 percent against all foreign currencies, what would be the dollar profit for the SY-20?
d.If the U.S. dollar were to weaken by 10 percent only against the Japanese yen and remained constant relative to all other foreign currencies, what would be the dollar profit for the SY-20?
e.Assuming the Interest Rate Parity holds, calculate the rate of return on 90-day securities in Switzerland, if the rate of return on comparable 90-day securities in the U.S. is 4.9 percent.
f.Assuming that purchasing power parity (PPP) holds, what would be the sale price of the SY-20 if it were sold in England rather than in Japan?