1. International Business
Chapter 11
International Business
START
EXIT

2. Chapter Outline 11.1 Currency Conversion Chapter Summary
Chapter Exercises

3. 11.1 Currency Conversion
It’s a well-worn cliché to say that the world is getting smaller and business is becoming more global all the time and it’s true.
There are plenty of products at your local shopping mall or even the grocery store that come from all sorts of exotic locations.
Just as much of the world’s business is conducted in English, much of the world’s business is conducted in U.S. dollars.
Most countries, though, have currencies of their own or participate with others in a shared currency such as the euro.
To convert between currencies, we must know the exchange rate.

4. 11.1 Currency Conversion Example 11.1.1 Problem
Convert US $3, into euros using the rate of (see page 470 of your textbook).
Solution
US$1 = €0.7838
US$1 x 3, = € x 3,724.59
$3, = €2,919.33

5. 11.1 Currency Conversion Example 11.1.2 Problem
Convert 348 Turkish new lira into US$ using the rate of
Solution
L1 = US$0.6692
L1 x 348 = US$ x 348
L348 = US$232.88

6. 11.1 Currency Conversion
Forward rates present an opportunity to lock in an exchange rate today for a currency exchange that will take place in the future.
Businesses and financial institutions sometimes try to protect themselves from sudden changes in the exchange rates by making an agreement with another business or financial institution to exchange currencies at a future date at a rate agreed on today.

7. 11.1 Currency Conversion Example 11.1.4 Problem
In August 2006, Rylad Drugs, an American company, sold a large order of pharmaceuticals to a Japanese wholesaler. The price was set at ¥13,500,000, and it was agreed that payment would be made when the order was delivered in mid-November. At the current exchange rate, Rylad is comfortable with the price, but it is worried that changes in the yen-dollar exchange rate over the next 3 months might make this deal less attractive.
Rather than run the risk of being hurt by changes in the exchange rate, suppose that on Thursday, August 24, 2006, the company made a deal to convert this sum into U.S. dollars 3 months later, on November 24, When the exchange was made, how much did they receive in dollars?

8. 11.1 Currency Conversion Example 11.1.4 Cont. Solution
Using the 3-month forward rate gives:
¥1 = $
¥13,500,000 = US$117,328.50

9. 11.1 Currency Conversion Example 11.1.5 Problem
Convert C$8,000 Canadian dollars into Mexican pesos (see Table 11.2, p. 474, in your textbook).
Solution
C$1 = Mex$
C$8,000 = Mex$78,714

10. 11.1 Currency Conversion Example 11.1.6 Problem
Convert 40,000 Russian rubles into Thai baht.
Solution
R1 = US$
R40,000 = US$1,492.40
$1 = B37.693
$1, = B56,253
R40,000 = B56,253

11. TRANSNATIONAL NATIONAL CURRENCY EXCHANGE
11.1 Currency Conversion
TRANSNATIONAL NATIONAL CURRENCY EXCHANGE
RETAIL RATES AS OF 8/25/06
Country/Currency
Sell
Buy
Euro
1.2954
1.2575
Japan/yen
Canada/dollar
0.9250
0.8650
Mexico/peso
0.0917
0.0912
South Korea/won
Switzerland/franc
0.8255
0.7945
UK/pound
1.9221
1.8567

12. 11.1 Currency Conversion Example 11.1.7 Problem Solution €1 = $1.2954
Suppose you want to exchange $200 for euros. Calculate the amount you would receive in euros from the retail table given on a previous slide.
Solution
€1 = $1.2954
€1/ = $1.2954/1.2954
€ = $1
€ x 200 = $1 x 200
€ = $200

13. Chapter 11 Summary Converting from US$ into a Foreign Currency
Converting from a Foreign Currency into US$
Converting between Two Foreign Currencies
Conversion Using Retail Rates

14. Chapter 11 Exercises Problem 1:
Converting from U.S. to Foreign Currency
Problem 2:
Converting from Foreign Currency to U.S.
Problem 3:
Converting Between Two Foreign Currencies
Problem 4:
Retail Foreign Currency Transactions
EXIT

15. Problem 1
Convert US $500 into euros if the exchange rate is US$1 = €
CHECK YOUR ANSWER

16. Solution 1
Convert US $500 into euros if the exchange rate is US$1 = €
US$1 x 500 = € x 500
US$500 = €405.75
BACK TO GAME BOARD

17. Problem 2
Convert 500 Jordanian dinars into US dollars if the exchange rate is 1 JOD = US$
CHECK YOUR ANSWER

18. Solution 2
Convert 500 Jordanian dinars into US dollars if the exchange rate is 1 JOD = US$
1 JOD x 500 = US$ x 500
500 JOD = US$705.70
BACK TO GAME BOARD

19. Problem 3
Convert 300 euro into Japanese yen using Table 11.2 on page 474.
CHECK YOUR ANSWER

20. Solution 3
Convert 300 euro into Japanese yen using Table 11.2 on page 474.
1€ = ¥
300€ = 300 x ¥
300€ = 2,019¥
BACK TO GAME BOARD

21. Problem 4
Suppose you want to exchange $100 for Mexican pesos. How much would you receive in pesos? Use the retail table on Slide 11.
CHECK YOUR ANSWER

22. Solution 4
Suppose you want to exchange $100 for Mexican pesos. How much would you receive in pesos? Use the retail table on Slide 11.
1 MXN = $0.0917
1 MXN/ = $0.0917/0.0917
$1 = MXN
$100 = 1, MXN
BACK TO GAME BOARD