Canadian Air

Answers:

1. International sales risks are aplenty and unfortunately will come in many forms, however the rewards are much easier to quantify; increased sales! Hopefully these extra sales will translate into more profits. These potential profits will be a direct reflection to how well the risks are managed. Risks will include such basic things as logistics. How exactly will the planes be shipped to Europe? How much will this cost? How far ahead must shipments be planned? Furthermore, there are exchange risks, caused by potential and most likely to occur monetary value fluctuations. There are also political risks, which can be seen to encompass legal matters such as tax laws, contract laws, intellectual property rights, violations thereof and various dispute resolutions. Also different and varied product regulations for different European countries. It is not an understatement to say that the aircraft industry is a highly regulated environment! This is over and above any "normal" learning curves associated with developing international sales, and the small blunders (hopefully no large ones) that will surely occur along the way.

2. Should the Canadian dollar rise (strengthen) against the Euro the company’s profits will decrease, as shown in the example below.

a. €65,000 x 1.20 = $78,000

b. €65,000 x 1.15 = $74,750

Should the Canadian dollar drop (weaken) against the Euro the companies profits would increase, as shown in the example below.

a. €65,000 x 1.20 = $78,000

b. €65,000 x 1.25 = $81,250

Canadian Air should instead insist that Amalie make her purchases in Canadian dollars. This would unfortunately prevent them from making extra profits should the Canadian dollar drop but it would prevent losses should the dollar rise. This would have for effect of removing one of the many risks involved with international sales.

3. Speaking from a strict sales perspective the additional sales volume will generate an extra $540,000 in gross profits each...