Question

A year ago, MC Hammer Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates? (Hint: Gain/loss is the difference between total value of last period and current period

Answer 1

Answer:

Gain= 132,000 - 120,000= 12,000 dollars

Explanation:

Giving the following information:

A year ago, MC Hammer Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds.

Year 1= 1/2= 0.5 exchange rate

Inventory year 1= 240,000*0.5= 120,000 dollars

Year 2= 1/1.82= 0.55 exchange rate

Inventory year 2= 120,000*0.55= 132,000 dollars