A US company plans to sell internationally to Brazil. Selling internationally will help the business grow as selling to US companies is
dwindling. The US company sold to the Brazilian company in the past and now the new order is 50% larger. However due to the exchange rate the US company
will be losing money. The Brazilian company is not willing to negotiate a change in rates. The US company decides to hedge forward in the market by securing a
guaranteed exchange rate for future exchanges of currencies contracted with a specific date and amount. Bank fees are built into the amount. Exchange rate
.4368. Loan from bank 64189.91. Loan from Brazilian bank contract rate 156507 at 6.5% 146954.93
I need to expand on the plan- to hedge forward. Thought needs to be detailed but able to use with other countries when you cannot price the
sale in US Dollars. Perhaps increase the cost of goods?
Previous Order
June exchange rate
Loses in margin at the 1-st order
New order exchange rate as in Feb
New order exchange rate as in June
New order exchange rate as in Sept (forecast)
Bank exchange rate offer
Labor
$6000.00
$9000.00
Materials
$32500.00
$48750.00
Manufacturing overhead
$4000.00
$4000.00
Administrative overhead
$2000.00
$2000.00
Total cost
$44500.00
$44500.00
$63750.00
$63750.00
$63750.00
$63750.00
Profit margin (8%)
$3870.00
$1074.97
$2795.03
$8806.85
$4612.45
$2515.25
-$2405.70
Cost + profit margin ($)
$48370.00
$45574.97
72556.85
68362.45
66265.25
66155.70
Conversion
0.4636
0.4368
0.4636
0.4368
0.4234
0.4227
Cost +markup (BRL)
104335.63
104338.30
156507.45
156507.45
156507.45
156507.45
Amount (gallons)
1210
1210
1815
1815
1815
1815
Price per gallon (BRL)
86.23
86.23
86.23
86.23
86.23
86.23