Question

A US Testing Equipment Manufacturer currently sells 4000 units of testing equipment in EU at a price of $5,000 per unit. The current exchange rate is $1.3200/€. If it is assumed that a 5% appreciation of euro will cause a 6% decrease in unit sales. The revenue impact of a 5% appreciation of euro if the $sale price is not change is: Explain

            a.         An increase of $1,200,000

            b.         A decrease of $1,200,000         

            c.         None of the above

Answer 1

b.         A decrease of $1,200,000         

Since the dollar selling price does not change the only impact will be due to the decrease in unit sales. Hence the decline in unit sales = 6%* 4000 = 240 units.

Hence the decline in total sales= decline in unit sales* dollar selling price

= 240*5000

= $ 1200,000