What would be the dollar profit or loss per bottle for tj


Problem

Trader Joe's (TJ) has ordered 10 crates of Trappist Westvleteren 6, from Belgium, which will be delivered in 30 days. On delivery, TJ must pay the monks €17.50 per bottle of beer. TJ knows it can sell each bottle for $20 in its U.S. stores.

(a) At the current exchange rate of 1 euro per U.S. dollar, what would be the $ profit or loss per bottle for TJ?

(b) If the euro appreciated to €0.95/$ over the 30-day delivery period, what would be TJ's $ profit or loss per bottle?

(c) To reduce its exchange rate risk, TJ has the opportunity to purchase a forward contract from Chase Bank. Assuming no transactions fees, what forward rate ($/€) would guarantee that TJ breaks even on its beer buy?

(d) If TJ wanted to ensure a profit of $0.50 per bottle, what forward rate ($/€) would guarantee it?

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Microeconomics: What would be the dollar profit or loss per bottle for tj
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