MBA 6601 Unit IV Assignment: Exchange Rates and International Business

This assignment, designed for MBA 6601, focuses on currency exchange and its implications in international business. Part 1 involves calculating exchange amounts and converting costs to U.S. dollars for company expansion into Japan, Europe, and the UK, using provided exchange rates. Part 2 presents a scenario where Pedro in Costa Rica and Hans in Iceland engage in transactions, requiring currency conversions between Costa Rican colons, Icelandic krona, and euros. Students are tasked with performing multi-step conversions, and analyzing factors that contribute to the weakening of a country's currency, such as inflation rates, interest rates, government debt, import/export balance, and economic recession.

MBA 6601, International Business
Unit IV Assignment
Complete Part1 and Part 2 of this assignment, and submit as a single document for grading.
Part 1:
Your company is deciding to expand to the following countries, and you and two other managers will have
to visit these countries to set up operations. You have $1,500.00 to convert in each currency. Compute
the exchange amount for each, and complete the table.
Country/Currency USD value for 1 unit of another currency
(as of 2/17/16)
Exchange amount
Japanese yen $0.008754 Ұ171350.24
Euro $1.1159 €1344.21
British pound $1.4398 £1041.81
While you are visiting each of these countries, you have to buy supplies and equipment for your
operations. You want to determine what it is costing you in U.S. dollars. Utilizing the same exchange rates
given above, compute the costs into U.S. dollars, and complete the table:
Japanese yen Computer Ұ167,000.00 $1461.92
Euro Desks & chairs €1,125.00 $1255.39
British pound Printer £575.00 $827.89

Part 2:
Pedro in Costa Rica wants to purchase some wild Atlantic salmon from Hans in Iceland. The fish are
purchased in Iceland’s currency, the krona. Pedro’s brother works in a bank and will take care of the
transactions free of charge. Pedro has 1,000,000 colons to start with. (There is no transaction fee, and
shipping is not calculated at this point.)
How much krona does he have to work with?
Answer:
The initial colons which will be used in the transaction 1000000
Step1: Convert the available Colons to Dollars.
This would be done by multiplying the exchange rate.
=1000000*0.001909 =$ 1909.
Step2: Convert the available Dollars to Krona.
This would be done by dividing with the exchange rate.
=1909/0.00788 =242258.8832 Krona.
Country/Currency USD $ value for 1 unit of another
currency (as of 2/17/16)
Euro € value for 1 unit of
another currency (as of 2/18)
Costa Rica colon CRC $0.001909 €0.001745
Iceland krona ISK $0.00788 €0.007062
The next day Hans decides to purchase some bananas from his new trading partner in Costa Rica. Han’s
sister works for an import/export agency and can arrange the transaction in euros with no fee. Hans takes
all of the krona he received from Pedro and proceeds to convert his currency to colon. (Note, one
country’s currency experienced some weakness overnight.)
How much colon does he have to work with? List your steps and the results you achieved with each step.
Also, explain some factors that could cause the country’s currency to weaken.
Answer:
The Krona which is available is 242258.8832. This amount needs to be converted to colon by the
following steps.
Step 1: Convert Krona to Euro by multiplying with the exchange rate.
=242258.8832*0.007062 = 1710.83 Euro
Step 2: Convert Euro to Colon by dividing with the exchange rate.
=1710.83/0.001745
=980419.6181 Colon
Factors which explain the weakening of country currency,
 Inflation Rate of an economy affect the weakening of a currency as the inflation rates in the
country might be higher.
 The interest rates in the country may be low which attracts less foreign investment leading to
weakening of the currency.
 If the government has debt, it would lead to weakening of the currency as investors would fear
the debt to rise hence would sell their investments which would lead to weakening of the
currency.
 If the country is import oriented it would have payments which are needed to be made hence it
would lead to currency outflow which would further devalue the currency.
 If the country is in recession, its interest rates would fall and less foreign capital would be
attracted which would lead the currency to further weaken.