A small Canadian company has contracted to purchase 200,000 toys for 3.50 British pounds each, from a British company. The Canadians have agreed to pay for the toys in British pound sterling.
The Canadians have also agreed to sell the toys to a U. S. company for USD$ 5.50 per toy. The Canadian company has agreed to accept U. S. dollars from the U. S. sales but plans to convert these revenues to Canadian dollars. The Canadian company estimates its marginal (additional cost per unit) costs (warehousing, insurance, transportation, and so on) as an additional Cnd$.75 per toy.
Exchange rates at the time of signing the agreements are as follows:
Cnd$ 1 = USD$ .68
Cnd$ 1 = British pound .54
1. On the line below indicate whether the firm earned a profit or loss from this deal and what was the dollar amount of the profit or loss in total. (Clearly state if a profit or loss was earned, what it was in total (not per unit) and show profit or loss calculation clearly with labels in space below)
Place word profit or loss on line.
Place amount on line.