Many, if not most, business firms today are involved in international trade at least to some degree. A company may buy parts from a foreign company, sell its domestically produced product in a foreign market, or produce a product in a foreign country and sell it in the domestic market. These entrepreneurs must concern themselves not only with the marginal revenue and marginal cost analysis, but they must also be concerned with foreign exchange rates since these will affect revenues and/or costs.

In your third and final analysis paper you are a consultant to Bremer’s Brew Inc. and you are asked to analyze

• the impact of changes in foreign exchange rates on BB’s cost of purchasing foreign ingredients and, thus, on BB’s total costs of production and
• the impact of changes in foreign exchange rates on BB’s revenue from the foreign sale of its product and, thus, on its total revenue.

 You may prepare this paper individually or in conjunction with one or two (no more than three students may work together) of your classmates. If you choose to work with another person or two, you should submit one paper with all of your names on the paper. Each group member will earn the same grade for the paper.

Below is the information regarding the foreign operations of Bremer’s Brew.

Bremer’s Brew began operating in 2001. The company uses hops to brew its beverage. In some years the hops have been purchased from U.S. growers. In other years the hops have been imported from growers in Canada. In still other years the hops have been imported from growers in Mexico. Bremer Inc. then uses these hops to brew its beverage in the United States. Finally, Bremer's can sell its beverage in the United States or it can export its beverage to Japan and or it can export its beverage to Switzerland for sale there.
 

• Bremer’s Brew buys 1,000 pounds of hops every year. You may choose to buy your hops from growers in the United States OR growers in Canada OR growers in Mexico.
• When you buy your hops from U.S. growers, assume the cost of the hops remains unchanged at $20 per pound. What is the total dollar cost of the hops bought in the U.S. in each year from 2001 to 2004?
• When you buy your hops in Canada, assume the cost of the hops remains unchanged at 30 Canadian Dollars (the Canadian currency) per pound. What is the total U.S. dollar cost of the hops purchased from Canada in each year from 2001 to 2004? [In a table show the U.S. Dollar-Canadian Dollar exchange rates for 2001, 2002, 2003 and 2004 and the total dollar cost of hops in each year.] You can find the necessary foreign exchange rate data at the Federal Reserve web site.    http://www.federalreserve.gov/releases/G5A/current/
• When you buy your hops in Mexico, assume the cost of the hops remains unchanged at 200 Peso (the Mexican currency) per pound. What is the total dollar cost of the hops purchased from Mexico in each year from 2001 to 2004? [In a table show the Dollar-Mexican Peso exchange rates for 2001, 2002, 2003 and 2004 and the total dollar cost of hops in each year.] You can find the necessary foreign exchange rate data at the Federal Reserve web site.     http://www.federalreserve.gov/releases/G5A/current/
• How and why do the changes in the exchange rates and the resulting change in the U.S. dollar cost of hops effect BB's total dollar production costs and, everything else remaining the same, BB's profit?
• In which year(s) has the U.S. dollar appreciated compared to the Canadian Dollar? In which year(s) has it depreciated relative to the Canadian Dollar?
• In which year(s) has the U.S. dollar appreciated relative to the Mexican Peso? In which year(s) has it depreciated relative to the Peso?
• Do the costs of buying foreign hops (in terms of U.S. dollars) increase when the U.S. dollar appreciates in value? Or do the costs of buying foreign hops (in terms of U.S. dollars) increase when the U.S. dollar depreciates in value? Why?
• Considering the changes in the exchange rates of the Canadian Dollar and the Mexican Peso (and the appreciation and depreciation of the U.S. dollar), in which year(s) is Bremer's is better off buying hops from a U.S. grower? In which year(s) is Bremer's is better off buying hops from a Canadian grower? In which year(s) is Bremer's is better off buying hops from a Mexican grower? Why?

• Bremer's Brew sells 1,000 cases of its beverage every year. Bremer's can sell its beverage in the United States OR in Japan OR in Switzerland.
• When Bremer's sell the beverage in the U.S., assume that the selling price of Bremer's Brew remains unchanged at $80 per case. What is the total revenue that Bremer's will earn each year if it sells its product in the U.S.?
• When Bremer's sells its beverage in Japan, assume that the Japanese selling price of Bremer's Brew remains unchanged at 9,600 Yen (the Japanese currency) per case. What is the total U.S. dollar revenue that Bremer's will earn in each year, 2001-2004? How does the total U.S. dollar revenue from selling Bremer's Brew in Japan change from 2001 to 2004? [In a table show the U.S. Dollar- Japanese Yen exchange rates for 2001, 2002, 2003 and 2004 and the total U.S. dollar revenue from selling Bremer's Brew in each year.] Once again, you can find the necessary foreign exchange rate data at the Federal Reserve web site.    http://www.federalreserve.gov/releases/G5A/current/
• When you sell your product in Switzerland, assume that the selling price of Bremer's Brew remains unchanged at 120 Swiss Francs (the currency of Switzerland) per case. What is the total U.S. dollar revenue that Bremer's will earn in each year, 2001-2004? How does the total U.S. dollar revenue from selling Bremer's Brew in Switzerland change from 2001 to 2004? [In a table show the U.S. Dollar-Swiss Franc exchange rates for 2001, 2002, 2003 and 2004 and the total U.S. dollar revenue from selling Bremer's Brew in each year.] Once again, you can find the necessary foreign exchange rate data at the Federal Reserve web site.   http://www.federalreserve.gov/releases/G5A/current/
• In which year(s) has the U.S. dollar appreciated relative to the Japanese Yen? In which year(s) has it depreciated relative to the Japanese Yen?
• In which year(s) has the U.S. dollar appreciated compared to the Swiss Franc? In which year(s) has it depreciated relative to the Swiss Franc?
• Does the revenue (in terms of U.S. dollars) from selling brew in another country increase when the U.S. dollar appreciates in value? Or does the revenue (in terms of U.S. dollars) from selling brew in another country increase when the U.S. dollar depreciates in value? Why?
• How and why do these changes in the exchange rates and the resulting change in the U.S. dollar revenue affect BB's total U.S. dollar revenue and, everything else remaining the same, BB's profit?
• Considering the changes in the exchange rates of the Japanese Yen and the Swiss Franc (and the appreciation and depreciation of the U.S. dollar), in which year(s) do you think Bremer's Brew is better off selling its product in the U.S.? In which year(s) do you think Bremer's Brew is better off selling its product in Japan? In which year(s) do you think Bremer's Brew is better off selling its product in Switzerland? Why?

  ESSAY FORMAT:
 

1.  The essay should be one to two pages typed (normal margins - one inch - normal font - about size 12, double spaced).  [NEATLY handwritten papers, written in ink, about two pages in length will be accepted. No essays written on both sides of the page or on “fringed” paper will be accepted]
2.  Begin your essay with a short one-paragraph statement indicating when you feel Bremer’s Brew should buy hops from U.S. growers when you feel Bremer’s Brew should buy hops from Canadian growers, and when you feel Bremer’s Brew should buy hops from Mexican growers. Also indicate when you think Bremer’s Inc should sell brew in the U.S., when you think Bremer’s Inc should sell brew in Japan, and when you think Bremer’s Inc should sell brew in Switzerland.	3 Points
3.  Include a table that shows the U.S. Dollar-Canadian Dollar exchange rates and the U.S. dollar Mexican Peso exchange rates for 2001, 2002, 2003 and 2004 and the total dollar cost of hops in each year. Also include one or two paragraphs explaining the effect of the changes in exchange rates on the Bremer’s Brew’s costs of production (in terms of U.S. dollars).      (The more specific you are, the more points you will earn.)	6 Points
4.  Include a table that shows the U.S. Dollar-Japanese Yen exchange rates and the U.S. dollar Swiss Franc exchange rates for 2001, 2002, 2003 and 2004 and the total dollar revenue earned in each year. Also include one or two paragraphs explaining the effect of the changes in exchange rates on the Bremer’s Brew’s revenues (in terms of U.S. dollars).      (The more specific you are, the more points you will earn.)	6 Points
5.  End your essay with a one paragraph conclusion which describes your recommendation to Bremer’s Brew regarding its international operations.	3 Points
6.  Neatness, correct spelling and proper punctuation are expected.	2 Points
7.  The grade on late papers will be lowered 2 points per class session that they are late.