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25 November, 20:29

jasper Corp. converts $1,000,000 into euros when the exchange rate is $1 = €0.75. After three months, the company converts this back into dollars when the exchange rate is $1 = €0.80. What is the outcome of this transaction?

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  1. 25 November, 23:50
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    net loss of $62,500

    Explanation:

    Today Jasper converted $1,000,000 into 750,000€ ($1 = €0.75)

    In three months from now, Jasper turned the 750,000€ into $937,500 ($1 = €0.80). ⇒ 750,000 / 0.80 = 937,500

    The result of these transactions is a net loss = $937,500 - $1,000,000 = - $62,500.

    The net loss happened because the euro depreciated against the US dollar, i. e. it lost value.
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