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    Dollar transaction exposure

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    1. Rolls-Royce, the British jet engine manufacturer, sells engines to U.S. airlines and buys parts from U.S. companies. Suppose it has accounts receivable of $1.5 billion and accounts payable of $740 million. It also borrowed $600 million. The current spot rate is $1.512/pound.

    a. What is Rolls-Royce's dollar transaction exposure in dollar terms? In pound terms?

    b. Suppose the pound appreciates to $1.7642/pound. What is Rolls-Royce's gain or loss in pound terms, on its dollar transaction exposure?

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    Solution Preview

    a. What is Rolls-Royce's dollar transaction exposure in dollar terms? In pound terms?

    Dollar transaction exposure in dollar terms = $1500 ...

    Solution Summary

    This posting provides the solution to the student's dollar transaction exposure question.

    $2.49

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