| Course | MT220 Global Business |
|---|---|
| Unit | Unit 6 |
| Paper type | Currency exposure exercise |
| Length | About 870 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT220 Unit 6
When the Peso Moves Ten Percent: A Unit 6 Currency Exposure Exercise on One $41,000 Roaster
[Student Name]
Purdue University Global
MT220: Global Business
Unit 6 Currency Exposure Exercise
[Instructor Name]
[Date]
Cascade Drum Works, the distributor, the exchange rates, interest rates and costs are composite and illustrative; bracketed figures stand where live market quotes would supply the numbers; the sources cited are real.
The Sale
Cascade Drum Works has agreed to sell one roaster to its Colombian distributor, with payment due ninety days after shipment. The list price is [$41,000]. Cascade's cost to build, crate and ship the machine is about [$28,700], leaving a margin of [$12,300]. The spot exchange rate today is [4,100] pesos per dollar. Each problem gives the values, the calculation and what the answer means.
Problem 1: The Price in Pesos
At spot, the price in pesos is 41,000 times 4,100, or [168.1 million] pesos.
What it means: this is the figure a Colombian buyer sees and compares with a locally built roaster. It will change every day the rate changes, even if Cascade's dollar price does not.
Problem 2: Invoicing in Pesos
Suppose the distributor insists on a peso invoice of [168.1 million], so it can budget in its own currency. Cascade receives dollars only when it converts the payment in ninety days.
If the peso weakens ten percent, to [4,510] per dollar, the payment converts to 168,100,000 divided by 4,510, or about [$37,273]. If the peso strengthens ten percent, to [3,690], it converts to about [$45,556].
What it means: with a peso invoice, Cascade carries the currency risk. The same sale could bring in about [$3,700] less or [$4,600] more than planned, depending on a market it cannot control. Madura (2018) calls this transaction exposure, the risk that the home-currency value of a contracted payment changes before it is settled.
Problem 3: What It Does to the Margin
Against the [$28,700] cost, the [$12,300] margin falls to about [$8,573] if the peso weakens ten percent, a drop of about 30 percent. If the peso strengthens ten percent, the margin rises to about [$16,856].
What it means: a ten percent currency move changes revenue by ten percent but margin by about thirty, because the cost stays fixed in dollars. That is why a small firm can lose most of its profit on a sale without any change in its own business.
A ten percent move in the peso takes away nearly a third of the margin.
Problem 4: Invoicing in Dollars
If Cascade instead invoices [$41,000] in dollars, it receives exactly that, and the risk moves to the distributor. If the peso weakens ten percent before payment, the distributor must find 41,000 times 4,510, or [184.9 million] pesos, about [16.8 million] more than it expected.
What it means: dollar invoicing protects Cascade but makes the machine harder to sell, especially in years when the peso is falling. A distributor squeezed by a weak peso may delay payment or ask for discounts, so the risk does not fully disappear.
Problem 5: A Forward Contract
Cascade could keep the peso invoice and sell 168.1 million pesos forward for delivery in ninety days. Because Colombian interest rates are higher than US rates, the forward rate prices the peso slightly weaker than spot. With an annual peso rate of about [9.25] percent and a dollar rate of about [4.3] percent, the ninety-day forward rate is about 4,100 times 1.023125 divided by 1.01075, or about [4,150] pesos per dollar.
Cascade would then receive about [$40,504] in ninety days whatever happens to the spot rate, and its margin would be locked at about [$11,804].
What it means: the forward costs about [$500] relative to today's spot, roughly the interest rate difference, but removes the risk of a [$3,700] shortfall. Eiteman et al. (2016) explain that a forward contract swaps an unknown future rate for a fixed one, so Cascade would also forgo the extra dollars of Problem 2 if the peso happened to strengthen.
Problem 6: The Break-Even Rate
At what rate would the sale earn nothing? Dividing [168.1 million] pesos by the [$28,700] cost gives about [5,857] pesos per dollar.
What it means: the peso would have to weaken about 43 percent before a peso-invoiced sale lost money outright. That is unlikely in ninety days but has happened over longer periods, which matters for multi-year distributor agreements with fixed peso prices.
Recommendation
For single sales on ninety-day terms, Cascade should invoice in pesos, which helps its distributor sell, and hedge each sale with a forward contract once the order is confirmed, accepting a small known cost to remove a large uncertain one. Peso price lists should be reviewed every quarter rather than fixed for a year. For the demonstration machine and spare parts held in Colombia, which Cascade owns in pesos for months, a natural hedge is to pay the distributor's training and marketing costs in pesos from the same sales, so some peso income is spent in pesos and never converted. Hill and Hult (2019) note that small exporters often lack treasury staff, and a simple rule of hedging every confirmed peso invoice is easier to follow than trying to predict the rate.
References
Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2016). Multinational business finance (14th ed.). Pearson.
Hill, C. W. L., & Hult, G. T. M. (2019). International business: Competing in the global marketplace (12th ed.). McGraw-Hill.
Madura, J. (2018). International financial management (13th ed.). Cengage.
What the MT220 Unit 6 assignment asks for
Unit 6 commonly asks for currency exposure problems for a company selling or buying abroad. Most prompts include converting a price at spot, recomputing receipts or costs when the rate moves, measuring the effect on margin, comparing invoicing in home and foreign currency and hedging with a forward contract or another instrument. Use the rates the prompt supplies, or a cited current spot rate with its date. Show the forward rate calculation from interest rate parity if your section expects it. Each answer should be followed by what it means for the firm. A recommendation on invoicing and hedging usually closes the exercise. Expect about four pages of numbered problems, citing international finance sources in APA 7.
Inside the MT220 Unit 6 example
The exercise sets out the sale, the cost, the margin and the spot rate, then converts the price to pesos. Problem two recomputes dollar receipts on a peso invoice at a weaker and a stronger peso, with Madura's definition of transaction exposure. Problem three applies the receipts to margin and shows a ten percent move cutting margin about thirty percent, which the highlighted line states and a margin note explains. Problem four moves the invoice to dollars and shows the distributor's extra peso cost. Problem five builds a ninety-day forward rate from peso and dollar interest rates and locks the receipts, with Eiteman and colleagues on giving up the upside. Problem six finds the break-even rate, with a second note. The recommendation invoices in pesos, hedges each confirmed order and adds a natural hedge for peso costs.
MT220 Unit 6 rubric: what earns full points
Currency exercises in MT 220 are usually graded on correct calculations and on interpreting what each result means for the firm. Conversions must use the right direction, dividing or multiplying by pesos per dollar. Showing the effect on margin, not just revenue, demonstrates understanding of why exposure matters. Comparing invoicing currencies shows who bears the risk. A forward rate built from interest rates, with the formula visible, earns method credit. Interpretation after each problem is often weighted heavily. A recommendation that matches the firm's size and capabilities, such as hedging every confirmed invoice, shows practical judgment. Madura, Eiteman and colleagues and Hill and Hult should be cited, and rate sources dated.
Common MT220 Unit 6 mistakes, and how to avoid them
Currency problems most often go wrong when the rate is applied in the wrong direction, turning a loss into a gain. Another frequent mistake is measuring exposure on revenue alone, which understates the effect on profit. Some students compute a forward rate but never explain why it differs from spot. Others recommend hedging without saying what it costs or what it gives up. Invoicing choices are sometimes discussed without saying who bears the risk. Watch rounding with large peso amounts, which can shift dollar results noticeably. If your section uses a non-deliverable forward, explain why it is used for that currency. If you send the rates and terms from your prompt, a writer can run each conversion with pesos per dollar handled correctly and tie every answer to the seller's margin.
Get an MT220 Unit 6 example written to your instructions
Send the problem set or scenario Unit 6 gives you, the exchange rates your prompt specifies, and the rubric. Every calculation in the custom solution is shown line by line, with an interpretation after each result and a priced comparison of responses at the end. It arrives in 24-48h, free for a first request, using your case's numbers wherever the case provides them. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT220 Unit 6 questions, answered
Should the exercise use real exchange rates?
Use whatever the prompt supplies. Where it leaves rates open, a current spot rate from a central bank or a major data provider, cited with its date, grounds the exercise. Scenario rates, such as ten percent weaker, are assumptions and should be labeled that way. Mixing a real spot rate with invented forwards without saying so confuses the reader.
What is a non-deliverable forward?
A forward contract settled in a major currency, usually dollars, rather than by exchanging the local currency itself. It is common for currencies with limits on offshore trading, and banks outside Colombia typically use one for pesos. On the settlement date the parties pay only the difference between the agreed rate and the market rate, applied to the notional amount.
How should interest rate parity appear in the solution?
Formula first: forward equals spot multiplied by one plus the foreign rate, divided by one plus the home rate, each scaled to the contract's length. Substitute the values, show the result, then add a sentence on direction, since the currency with the higher interest rate trades at a forward discount. A bare number gives a grader no method to credit.
Where can I find a free MT220 Unit 6 sample paper?
This page shows a complete MT220 Unit 6 currency exposure exercise on one roaster sold to Colombia. It converts the price, tests a ten percent peso move, compares invoicing currencies, prices a forward hedge, finds the break-even rate and includes margin notes.
Why does a ten percent peso move cut the margin by about thirty percent?
Because the roaster's $28,700 cost stays fixed in dollars while revenue falls. A drop from $41,000 to about $37,273 comes entirely out of the $12,300 margin, leaving about $8,573.