Felicia & Fred are considering the introduction of a new product line of jewelry featuring crystals imported from the Czech Republic. The manufacturing plant offers crystals in all colors, sizes, and shapes cut to the design specifications of their customers. Further, quality is comparable or better than domestically sourced product. Current pricing is €90.00 per kilogram, which includes shipping, insurance and any duties required for the product to reach its destination. Delivery would take place in three months and be based on the present currency exchange rate; the purchase requirement for production is estimated to be 50,000 kilograms.

Felicia & Fred’s designers and product engineers have determined that the price is quite competitive given a quote of $125 per kilogram from a manufacturing plant in Seattle, WA. However, you have acknowledged that this will be contingent on the exchange rate between the euro and the U.S. dollar when the purchase is initiated, as per contract.

Question 1

After obtaining the present exchange rate on the euro determine whether Felicia & Fred should source the crystals domestically or internationally. Support your answer with a calculation and provide the date upon which you sourced the euro exchange rate.

Question 2

Since this transaction will not take place for at least three months and Fred and Felecia are quoting at today’s exchange rate, what are the risks they are incurring and what can be done to protect the firm from these risks?