ICAEW BIP · Chapter 10 · Question 1 of 10
Hartfield Ltd sells to US customers at a price of $90 per unit, invoiced in dollars. It budgeted to sell 20,000 units at an exchange rate of $1.50 = £1. Sterling then strengthens to $1.60 = £1, and the dollar price and sales volume do not change. What is the effect on Hartfield's sterling revenue compared with the budget?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) A decrease of £75,000
Explanation
Dollar revenue = 20,000 x $90 = $1,800,000. Budgeted sterling revenue = $1,800,000 / 1.50 = £1,200,000. Revenue at the new rate = $1,800,000 / 1.60 = £1,125,000. Sterling revenue falls by £75,000. A stronger domestic currency means each dollar earned converts into fewer pounds, which hurts exporters that price in foreign currency.
More The external environment, technology, data and ethics MCQs
- Q3Mira is a management accountant at Brookfield Ltd. A former colleague who now works for a competitor asks her to share Brookfield's…
- Q4What is the main purpose of competition regulation, such as the powers given to a national competition authority?
- Q5Calder Ltd buys a component from an overseas supplier at £40 per unit. The government introduces an import tariff of 15% of the…
- Q6A company's marketing team designs its own questionnaire and sends it to customers to measure their satisfaction with a new product. What…
- Q7A company wants to survey 200 of its 8,000 customers. It lists the customers alphabetically, chooses a random starting point between 1 and…