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# exchange rate risk

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I am in need of assistance with the following two questions from my MBA Economics class. I am having difficulty grasping this material and wondered if someone could help me understand this better in a brief and easy to follow way. Thank you for your help.

Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to the Swiss franc. Speculate as to how this would hurt the Swiss watchmaker.

Suppose Winter Sports?a hypothetical French retailer of snowboards?wants to order 5,000 snowboards made in the United States. The price per board is \$200, the present exchange rate is 1 euro = 1 dollar, and payment is due in dollars when the boards are delivered in three months. Use a numerical example to explain why exchange rate risk might make the French retailer hesitant to place the order. How might speculators absorb some of Winter Sports' risk?

https://brainmass.com/economics/contracts/exchange-rate-risk-138299

#### Solution Preview

Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States.
I am in need of assistance with the following two questions from my MBA Economics class. I am having difficulty grasping this materal and wondered if someone could help me understand this better in a brief and easy to follow way. Thank you for your help.

Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to the Swiss franc. Speculate as to how this would hurt the Swiss watchmaker.
This can hurt the Swiss watchmaker as US Dollar is depreciating and hence its export realization will be less than expected. Moreover if the Swedish krona is appreciating then its import payments will be higher. Thus its revenues will be less and the costs will be higher due to adverse foreign exchange movements. This will lead to reduction in profits.

Suppose Winter Sports?a hypothetical French retailer of snowboards?wants
to order 5,000 snowboards made in the United States. The price per board is
\$200, the present exchange rate ...

#### Solution Summary

This posting considers exchange rate risk.

\$2.19