1 1 Scenario 1: The company uses the spot rate on April 1st to convert its sales revenue in MYR to U.S. dollars. In reviewing exchange rates take the base currency / foreign currency to reach the exchange rate. The rate tells how much it cost to buy one unit of the base currency (USD) from the foreign exchange rate (MYR). Using exchange rates, businesses can calculate the amount needed to make the exchange. "Exchange rates always apply to the cost of one currency relative to another" (Mitchell, 2022). Our products sold in Malaysia are sold in the Malaysian ringgit. This currency is also known as the MYR. Using an exchange rate at the close of the first quarter on April 1st. The April 1st exchange rate is 3.52 MYR per USD. We can assess our sales in the value of dollars. Our company has a contractual agreement to sell 4,000 units for 1.25 million MYR in the first quarter. For the business to reach the break-even point we must sell each unit at a price of 90 American dollars. Scenario 1: Each dollar is equivalent to 3.52 MYR when using the exchange rate provided. At this rate, our business will only reach 89$ per unit, a dollar or 3.52 MYR short of the breakeven point. This means the company agreed to exchange 1.25 million MYR using the forward rate on January 1st when April 1 arrives. Scenario 2: In scenario 2, we find the MYR has increased in value in comparison to the exchange rate of the USD. The exchange rate for the January 1st quarter would be 3.13 MYR per USD. When we examine the January 1st exchange rate we find that the business will receive a 9- dollar profit and when fulfilling our contractual 4,000 units, we find a profit of $36,000 US dollars. For these two scenarios, we are essentially examining the change in the exchange rate and how it affects the profitability of the Malaysian region of our business.
2 Scenario 3: Another option for the company is to spend foreign currency and avoid any currency exchange. Because it is a manufacturing company, raw materials are always needed. Scenario 3 has more advantages than Scenario 1, but if there's a need for additional shipping of materials between Malaysia and the US, then there are going to be additional costs associated with Scenario 3. Scenario 3 would require more research into the cost of the raw materials available in Malaysia and the US that are required for the company to continue production above the break- even point. Additional costs in shipping will result in a loss of more profits. If the exchange rate is fluctuating to a point where the business can go from being profitable to not meeting the break-even point, there are some resolutions to consider. Scenario two is profitable to the company at a point above the break-even cost. Using foreign currency and avoiding the exchange rates fluctuating could lead to more profitability,