Deitz J.E., Southam J.L. Contemporary Business Mathematics for Colleges

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414 Part 5 Business Applications

THE BOTTOM LINE

Summary of chapter learning objectives:

Learning Objective

20.1

Compute currency exchange rates.

Example

1. Using the In US Dollars column in Figure 20-1, compute the value

in U.S. dollars of 5,000 units of each of the following foreign cur-

rencies. Round answers to the nearest cent.

a. Chinese yuan b. Russian ruble

c. Brazilian real d. Thailand’s baht

2. Using the Per US Dollar column in Figure 20-1, compute the amount

of U.S. dollars necessary to buy 5,000 units of each of the following

foreign currencies. Round answers to the nearest cent.

a. Sweden’s krona b. Hungary’s forint

c. Taiwan dollar d. Mexican peso

Answers: 1a. $695.95 b. $204.07 c. $2,867.30 d. $161.03 2a. $787.25 b. $28.83 c. $156.10 d. $462.45

3. $61,810 expected; $64,736 received; $2,926 gain 4. $22,852.80 5a. 2.54 m b. 3,281 ft c. 9.654 km d. 3.5 oz

e. 11.355 L f. 7.399 qt

20.4

Convert between U.S. weights and measures and metric

weights and measures.

5. Using Figure 20-2, make the following conversions.

a. Convert 100 inches to meters. b. Convert 1,000 meters to feet.

c. Convert 6 miles to kilometers. d. Convert 100 grams to ounces.

e. Convert 3 gallons to liters. f. Convert 7 liters to quarts.

20.3

Compute duties on imports.

4. Broadway Department Store ordered from a foreign country 300 sets

of dishes on which an ad valorem duty of 5.8% is charged. The price

of each set of dishes is $72. Payment is to be made in U.S. currency.

What is the total cost to Broadway?

20.2

Compute the effects of exchange rate changes.

3. A U.S. company has contracted to sell certain goods to a company in

Mexico. The Mexican company has contracted to pay 700,000 pesos

for the goods. At the time the contract was signed, the In US Dollars

column in the newspaper showed that the Mexican peso was worth

$0.0883. On the date payment was due, the peso changed to a value

of $0.09248 U.S. How much did the U.S. company gain or lose by

having agreed to accept payment in pesos instead of U.S. dollars?

Chapter 20 International Business 415

(In all cases, round to the nearest hundredth.)

1 How many Thai baht can a person get for $15 U.S. dollars?

2 How many U.S. dollars can a person get for 15 Thai baht?

3 How many South African rand can a person get for $540 U.S. dollars?

4 How many U.S. dollars can a person get for 540 South African rand?

5 A U.S. exporter agrees to accept 300,000 South African rand in payment for goods. The South African rand is

valued as shown in Figure 20-1. Compute the value in U.S. dollars that the U.S. exporter will receive. (Round

to nearest dollar.)

6 In problem 5, suppose that the value of the South African rand changes to 7.777 per U.S. dollar. How much

will the exporter gain or lose in this transaction? (Round to nearest dollar.)

7 Tonaka Manufacturing, Inc., contracted to sell goods to a company in Sweden for 630,000 Swedish kronor.

Using the data in Figure 20-1, compute the U.S. dollar value that Tonaka expects to receive. (Round to

nearest dollar.)

8 Assume that the value of the Swedish krona decreased by 20%; compute the U.S. dollar value that Tonaka

would then expect to receive.

9 Princess Jewelry contracted to purchase 144 bracelets from a foreign manufacturer. The price of each

bracelet is $40. An ad valorem duty of 17% is charged on each bracelet. Compute the duty Princess Jewelry

will pay for the shipment.

10 ABC, Inc., plans to purchase 250 units of computer components. ABC can buy the components from country

Y at a price of $60 each plus an ad valorem duty of 35% or from country YY at a price of $64 plus an ad

valorem duty of 13%. Compute the amount ABC will save by purchasing from the lowest-cost source.

11 Convert 8 pints to liters.

12 The length of trip A is stated as 300 miles. The length of trip B is stated as 300 kilometers. In miles, how

much farther is trip A than trip B?

SELF-CHECK

Review Problems for Chapter 20

Answers to the Self-Check can be found in Appendix B at the back of the text.

416 Part 5 Business Applications

Notes

Chapter 20 International Business 417

Assignment 20.1: Trading with Other Countries

Name

Date Score

A (44 points) Solve the following problems. (4 points for each correct answer)

1. Using the data in Figure 20-1, find the amount of U.S. dollars needed to buy 300 units of each foreign

currency listed.

Foreign Currency Price of 300 Units

a. Australian dollar

b. Euro

c. Israel new shekel

d. Brazilian real

e. Canadian dollar

f. Chinese yuan

g. South African rand

$40.23

$41.76

$301.84

$172.04

$83.80

$445.53

$271.05

Learning Objectives

1 2

Illustrative solution:

a. $300 3 0.903497 5 $271.05

Illustrative solution:

a. 4,500 3 0.316835 5 $1,425.76

2. Using the data in Figure 20-1, determine the value in U.S. dollars of 4,500 units of each foreign currency

listed below. (Round answers to the nearest cent.)

Foreign Currency Value of 4,500 units

a. Argentinean peso

b. British pound

c. Danish krone

d. Indian rupee

$115.03

$896.72

$8,859.15

$1,425.76

Score for A (44)

B (56 points) Solve the following problems. Round pennies to the nearest dollar. (8 points for each

correct answer)

3. Hadley Enterprises has contracted to sell certain goods to a company in Britain. The price agreed on for

the goods is 80,000 British pounds. On the date the contract was signed, the financial section of the local

paper showed that the British pound was valued at $1.9501.

a. How much in U.S. dollars does Hadley Enterprises expect to receive for the goods?

b. If the value of the British pound fell from 1.9501 to 1.8932 on the date of payment, how much would Hadley

Enterprises lose by having contracted in British pounds instead of U.S. dollars?

c. If the British pound rose to 1.9688 on the date of payment, how much would Hadley Enterprises gain by having

contracted in British pounds instead of U.S. dollars?

4. Miller Furniture Company imported 150 chairs from a Danish firm. Each chair is valued at 890

Danish kroner. What is the value of the chairs in U.S. dollars if the Danish krone is currently valued

at 0.199271?

5. Oldtown Industries, Inc., is contracting to sell its product to a country whose currency is unstable and dif-

ficult to convert to U.S. currency. The value of the goods is $20,000 U.S. The currency of the country to

which the goods will be shipped is currently valued at 0.0040 per U.S. dollar. Oldtown Industries is willing

to accept the currency of a third country. The Singapore dollar is agreed on. The Singapore dollar is shown

as 0.707414 on the date the contract is signed.

a. How many Singapore dollars does Oldtown Industries expect to receive?

(Round the answer to the nearest dollar.)

b. If the Singapore dollar does not change before the date of payment, but the value of the currency of the

receiving country falls from 0.0040 to 0.0003, how much would Oldtown Industries save by using the

Singapore dollar?

6. If the British pound is valued at 1.9000 per U.S. dollar and the Egyptian pound at 0.3700, how many

more Egyptian pounds than British pounds could a U.S. citizen buy for $1,000 U.S.? (Round the answer

to the nearest pound.) (10 points)

Score for B (56)

2,703 2 526 5 2,177 more Egyptian pounds

$1,000 4 .3700 5 2,703 Egyptian pounds

$1,000 4 1.9000 5 526 British pounds

$2,177

$20,000 price 2 $1,500 on payment day 5 $18,500 U.S. saved

5,000,000 3 0.0003 new value of currency 5 $1,500 U.S. on payment day

$20,000 U.S. 4 0.0040 currency of importing country 5 5,000,000 units of currency expected

$18,500

$20,000 4 0.707414 5 28,272

28,272

150 chairs 3 890 Danish kroner 3 $0.199271 U.S. per krone 5 $26,603

$26,603

$157,504 received 2 $156,008 5 $1,496 gain

80,000 pounds 3 $1.9688 U.S. per pound 5 $157,504

$1,496

$156,008 expected 2 $151,456 received 5 $4,552 lost

80,000 pounds 3 $1.8932 U.S. per pound 5 $151,456

$4,552

80,000 pounds 3 $1.9501 U.S. per pound 5 $156,008

$156,008

418 Part 5 Business Applications

Assignment 20.1 Continued

Chapter 20 International Business 419

Assignment 20.2: Duties and Metric Conversion

Name

Date Score

A (56 points) Solve the following problems. (points for correct answers as marked)

1. Benjamin’s Department Store ordered from a foreign country 150 music boxes on which an ad valorem

duty rate of 3.2% is charged. Payment is to be made in U.S. dollars. The price of each music box is $18.

(2 points for each correct answer)

a. What is the price of the 150 music boxes before duty is added?

b. What is the amount of duty charged on the shipment?

c. What is the total cost to Benjamin’s?

2. Gems International Company is purchasing from a foreign country one gross (144) of 20-inch gold neck-

laces at $75 each and six dozen 18-inch silver necklaces at $55 each. The ad valorem duty rate for gold and

silver jewelry is 7%. What is the total cost of the shipment to the buyer? (8 points)

$15,793.20

$2,700 1 $86.40 5 $2786.40 total cost

$2,786.40

$2,700 3 0.032 duty 5 $86.40

$86.40

150 music boxes 3 $18 each 5 $2,700 cost before duty

$2,700

Learning Objectives

3 4

144 gold necklaces 3 $75 each 5 $10,800 cost before duty

72 (6 3 12) silver necklaces 3 $55 each 5 $3,960 cost before duty

$10,800 1 $3,960 5 $14,760 total cost before duty

$14,760 3 0.07 5 $1,033.20 duty

$14,760 1 $1,033.20 5 $15,793.20 total cost with duty

4 gross 5 4 3 144 5 576 vases

576 3 $45 5 $25,920 without duty

9% duty on porcelain 2 4% duty on lead crystal 5 5% less on crystal

$25,920 3 0.05 5 $1,296 saved

3. Sutter’s Department Store is going to buy four gross (one gross 5 144) of vases for the next Christmas

season. It can buy porcelain vases or lead crystal vases for $45 each. The duty on porcelain vases is 9%.

The duty on lead crystal vases is 4%. How much will Sutter’s save in total cost by purchasing lead crystal

instead of porcelain? (8 points)

$1,296

4. Melody Piano Store can purchase pianos domestically for $1,360 each. It can purchase pianos from a

foreign country for $1,300 plus 5.3% ad valorem duty.

a. Melody Piano Store purchases the pianos with the lower total cost. Does it purchase from a domestic or a foreign

manufacturer? (6 points)

b. How much does it save on each piano? (2 points)

$1,368.90 foreign 2 $1,360 domestic 5 $8.90 saved per piano

$8.90

$1,300 1 $68.90 5 $1,368.90 total cost from foreign manufacturer

$1,300 3 0.053 5 $68.90 duty import

Domestic

5. Broadway Office Equipment Company purchased the following equipment from a foreign country:

72 automatic typewriters at $150 each 1 2.2% duty

24 addressing machines at $30 each 1 4.2% duty

144 pencil sharpeners at $12 each 1 6% duty

24 check-writing machines at $60 each, duty free

80 calculators at $24 each 1 3.9% duty

a. What was the cost of the order before duty? (8 points)

$16,608

420 Part 5 Business Applications

Assignment 20.2 Continued

72 typewriters 3 $150 5 $10,800

24 addressing machines 3 $30 5 $720

144 pencil sharpeners 3 $12 5 $1,728

24 check-writing machines 3 $60 5 $1,440

80 calculators 3 $24 5 $1,920

$10,800 1 $720 1 $1,728 1 $1,440 1 $1,920 5 $16,608

Typewriters: $10,800 3 0.022 5 $237.60

Addressing machines: $720 3 0.042 5 $30.24

Pencil sharpeners: $1,728 3 0.06 5 $103.68

Check-writing machines: No duty

Calculators: $1,920 3 0.039 5 $74.88

$237.60 1 $30.24 1 $103.68 1 $74.88 5 $446.40

$16,608.00 before duty 1 $446.40 duty 5 $17,054.40

$1,728 3 0.5 5 $864 duty

$1,728 1 $864 5 $2,592 total cost

0.50 ad valorem rate 2 0.06 ad valorem rate 5 0.44 difference

$1,728 3 0.44 difference 5 $760.32 more

$30,000 3 0.025 5 $750 duty

$30,000 1 $750 5 $30,750 country A

$30,000 3 0.012 5 $360 duty

$30,000 1 $360 5 $30,360 country B

$30,750 2 $30,360 5 $390 savings

b. What was the cost of the order after duty? (Round each calculation to the nearest cent.) (8 points)

$17,054.40

c. If the 144 pencil sharpeners had been purchased at $12 each from a country with which trade was discouraged and

the ad valorem duty rate was 50%, how much would the pencil sharpeners have cost? (4 points)

$2,592

b. How much would Adams Industries save by purchasing from country B? (2 points)

$390

Score for A (56)

d. How much more duty would a buyer pay on the pencil sharpeners at the ad valorem rate of 50% than at an ad

valorem duty rate of 6%? (2 points)

$760.32

6. Adams Industries could purchase $30,000 worth of textiles from country A with an ad valorem duty rate

of 2.5% or from country B with an ad valorem duty rate of 1.2%.

a. How much would the shipment cost if purchased from country A? (2 points)

$30,750

B (24 points) Solve the following problems. (points for correct answers as marked)

The Allied Computer Company imports some computer components and manufactures other compo-

nents and then assembles computers for sale within the United States or for export to foreign countries.

The company is located in a district that has been designated by the International Trade Administration

as a foreign trade zone. The company imported $250,000 worth of monitors having an ad valorem duty

rate of 3.7%, $300,000 worth of power supplies having an ad valorem duty rate of 3.0%, and $500,000

worth of printers having an ad valorem duty rate of 3.7%. All products were finished and sold 1 year later.

a. If all products were sold within U.S. Customs territories, how much duty—in U.S. dollars—would the company

pay at the end of the year? (2 points)

$36,750

Chapter 20 International Business 421

Assignment 20.2 Continued

$250,000 3 0.037 5 $9,250 duty on monitors

$300,000 3 0.03 5 $9,000 duty on power supplies

$500,000 3 0.037 5 $18,500 duty on printers

$9,250 1 $9,000 1 $18,500 5 $36,750 total duty

dollars of duty would the company pay on the portable computers? (4 points)

100% 2 20% 5 80%, or 0.8 subject to duty

$260,000 3 0.8 5 $208,000 subject to duty

$8,112

portable computers? (4 points)

$260,000 3 0.3 5 $78,000 subject to duty

$3,042

b. If 40% of each of the finished products were moved into U.S. Customs territories for sale and 60% were exported

for sale in foreign countries, how many dollars of duty would the company pay at the end of the year? (8 points)

c. If all products were exported for sale, how much duty would the company pay at the end of the year?

(2 points)

8. The Allied Computer Company imported $260,000 worth of portable computers having an ad valorem

duty rate of 3.9% and kept 20% of them for exhibition and company use on the premises.

a. If the company repackaged and sold the remaining portable computers in U.S. Customs territories, how many

No duty is paid on exports.

$36,750 total duty 3 0.40 subject to duty 5 $14,700 duty paid

$14,700

$208,000 3 0.039 duty rate 5 $8,112 duty paid

b. If the company repackaged and exported 50% of the portable computers for sale in foreign countries and moved

the remaining 30% into U.S. Customs territories for sale, how many dollars would the company pay in duty on the

$78,000 3 0.039 duty rate 5 $3,042 duty paid

9. A company imported $5 million worth of laptop computers having an ad valorem duty rate of 3.9%. The

company repackaged and exported all the computers for resale. How many dollars did the company save

by being located in a foreign trade zone? (4 points)

Score for B (24)

$5,000,000 3 0.039 duty rate 5 $195,000 saved

$195,000

C (20 points) Solve the following problems using Figure 20-2. (1 point for each correct answer)

10.

Make the following conversions from U.S. measures to metric:

a. Convert 15 inches to meters:

b. Convert 15 feet to meters:

c. Convert 15 yards to meters:

d. Convert 15 miles to kilometers:

e. Convert 25 ounces to grams:

f. Convert 25 pounds to grams:

g. Convert 25 pounds to kilograms:

h. Convert 30 pints to liters:

i. Convert 30 quarts to liters:

j. Convert 30 gallons to liters:

11. Make the following conversions from metric to U.S. measures:

a. Convert 15 meters to inches:

b. Convert 15 meters to feet:

c. Convert 15 meters to yards:

d. Convert 15 kilometers to miles:

e. Convert 25 grams to ounces:

f. Convert 25 grams to pounds:

g. Convert 25 kilograms to pounds:

h. Convert 30 liters to pints:

i. Convert 30 liters to quarts:

j. Convert 30 liters to gallons:

Score for C (20)

30 3 0.264

7.92 gal

30 3 1.057

31.71 qt

30 3 2.113

63.39 pt

25 3 2.2

55 lb

25 3 0.0022

.055 lb

25 3 0.035

.875 oz

15 3 0.621

9.315 mi

15 3 1.09

16.35 yd

15 3 3.281

49.215 ft

15 3 39.37

590.55 in.

30 3 3.785

113.55 L

30 3 0.946

28.38 L

30 3 0.473

14.19 L

25 3 0.454

11.35 kg

25 3 454

11,350 g

25 3 28.35

708.75 g

15 3 1.609

24.135 km

15 3 0.914

13.71 m

15 3 0.305

4.575 m

15 3 0.0254

0.381 m

422 Part 5 Business Applications

Assignment 20.2 Continued

Notes

Chapter 20 International Business 423