Question

An American company wants to buy a television from a Chinese company. The Chinese company sells its TVs for 1,200 yuan each. The current exchange rate between the U.S. dollar and the Chinese yuan is \(\$ 1=6\) yuan. How many dollars will the American company have to convert into yuan to pay for the television? a. \(\$ 7,200\) b. \(\$ 1,200\) c. \(\$ 200\) d. \(\$ 100\)

Short answer

The American company needs \(\$200\) to buy the television.

Step-by-step solution

Understand the Relationship

We need to determine how many U.S. dollars are required to make a transaction in Chinese yuan. The exchange rate shows the equivalence between the two currencies: For this problem, if 1 U.S. dollar equals 6 yuan, we will find out how much U.S. dollars equal 1,200 yuan.

Setup the Proportion Equation

Formulate the equation based on the given exchange rate. We know that 6 yuan correspond to 1 dollar, so we set up the proportion as follows:\[ \frac{1}{6} = \frac{x}{1200} \]Here, \(x\) is the number of dollars needed to purchase 1,200 yuan.

Solve the Equation

To find \(x\), solve the proportion:Multiply both sides by 1,200 to isolate \(x\):\[ x = \frac{1200}{6} \]By performing the division, we find: \[ x = 200 \]This means that 200 dollars equal 1,200 yuan at the current exchange rate.

Verify and Select the Correct Answer

The calculated amount of dollars needed to purchase the television is 200 dollars. Verify against the provided options:The correct answer from the given choices is (c) \(\$200\).

Key concepts

Currency Conversion

Currency conversion is the process of changing one currency into another. This happens often in global businesses when companies need to purchase goods or services from companies in other countries. In this exercise, an American company needs to determine how many U.S. dollars are necessary to purchase a television priced in Chinese yuan. The process of currency conversion involves using an exchange rate, which indicates the value of one currency when exchanged for another.

• The exchange rate is essential because it dictates how much of one currency is needed to buy a certain amount of another currency.
• Exchange rates fluctuate due to various factors, including economic conditions, market speculation, and government interventions.

To solve our example, we use the exchange rate given: \( \\(1 = 6 \text{ yuan} \). This rate helps in setting up a proportion to calculate how much \( \\)1,200 \) yuan would be in dollars. By solving the equation, the American company learns they need to convert \( \$200 \) to afford the television.

Trade Economics

Trade economics involves analyzing how countries exchange goods and services across borders. It's a fundamental part of international economics. Understanding trade economics helps businesses and governments to make informed decisions about their transactions with other countries.

• By engaging in trade, countries can access goods that are not available locally or that might be cheaper if imported.
• This process is driven by comparative advantage, where countries export goods they produce efficiently and import those they don't.

In our case, the American company benefits from purchasing televisions from the Chinese firm, possibly due to cost efficiency or specialized production in China. An understanding of trade economics allows companies to weigh costs and benefits effectively, considering factors like tariff implications, shipping costs, and currency exchange risks. Without this knowledge, firms might face losses due to uninformed trade decisions.

International Business Transactions

International business transactions are exchanges of goods, services, or resources between businesses or entities in different countries. These transactions are complex, involving various considerations beyond just the exchange of currency. Some key elements include:

• Understanding local laws and regulations to avoid legal issues during business exchanges.
• Managing logistics, which includes the transportation of goods over international borders, often subject to customs regulations.

In the exercise, the American company is engaging in an international business transaction by purchasing a television from a Chinese company. This requires them not only to manage the currency exchange but also consider other factors like shipping times, costs, and import duties. Successful international transactions depend heavily on clear communication, contract agreements, and sometimes intermediaries like banks or customs brokers to ensure everything runs smoothly. Such transactions foster global business growth and understanding, enabling companies to expand their operations and reach new markets.