Budgeted vs. market rates: FarmAid Subscription

FarmAid is involved in international co-operation for crop development. It has a subscription to pay to International Farm Aid of US$ 5 million, but can also pay in Australian Dollars. Payment is due today, but the exchange rates were set as of 31st December. The exchange rate was 0.5000, so payment is either US$ 5 million or A$ 10 million.

FarmAid elects to pay US$ 5 million

Result?
At today's exchange rate of 0.5700, the US$ 5 million only costs A$8,771,930 ($5,000,000 / 0.5700). FarmAid has reduced the A$ cost of the subscription by A$ 1,228,070 or by 12.3%. FarmAid could use this money to give more aid elsewhere, thereby making its budget work more efficiently.

Back