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Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1£ = 2.00 U.S. dollars. This year the exchange rate is 1£ = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the U.S. dollar gain or loss in inventory value as a result of the change in exchange rates?

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Answer:

Dollar Loss in value of inventory=$43,200

Explanation:

The movement in exchange rate from $2 to $1.82 per pound represents a  depreciation in the value of Pounds and therefore a depreciation in the value of the inventory .

The loss in value of the inventory would be difference between the Dollar value a year ago and now. This will be done as follows:

Dollar value of inventory a year ago = 240,000 × $2.00 =480000

Dollar Value of inventory now = 240,000× $1.82= 436,800

Dollar Loss in value of inventory = $480000  - 436,800 =$43,200

Dollar Loss in value of inventory=$43,200

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