Is this good deal for the canadians

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Reference no: EM132192086

Situation

A small Canadian company has contracted to purchase 100,000 toys for £ 3.50 each from a British toy manufacturer. The Canadians have agreed to pay in pounds sterling. The Canadians have also agreed to sell the toys to a US company for $5.50 US per toy. The Canadian company has agreed to accept US dollars but plans to convert these revenues to Canadian dollars. The Canadian company estimates its marginal costs for warehousing, distribution, etc. is C$.75 per toy.

1. What impact on profits does the following exchange have on the Canadian company's profits using the rates below? Is this a good deal for the Canadians? Why or why not? Support your answers by showing calculations and currency amounts.

CAD $ Equivelant Currency per CAD $

Country(Canada)/currency rate at the UK .66 1.5152

US $ Equivelant Currency per US $

Country(US)/currency rate at Canada .99 1.01

Reference no: EM132192086

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