George Benaroya

February 25, 2022 by George Benaroya 12 Comments

Foreign exchange

Luis has three friends whose parents want to purchase a Rolex, which is unavailable in Mexico. Each Rolex costs $10,000 or MXP 180,000. The exchange rate is $1=MXP 18. The friends offer to pay him an additional $1,000 or MXP 18,000 for each watch he buys for them.

They give him the total amount in pesos, MXP 594,000, worth $33,000. Luis was going to exchange the Mexican pesos for dollars, but he forgot.

Luis routinely goes to visit his girlfriend Jenny in NYC. He goes to the Rolex store and takes a photo of the Rolex they want, to make sure he will get the correct one (photo below). While at the store. Jenny tries on a necklace. It looks great on her. Luis figures with the $3,000 profit he will make, he would buy Jenny a necklace.

Five weeks later, on his flight to NY, he reads in the newspaper that the Mexican Peso keeps depreciating. He panics. He gets off the plane and exchanges the money at Newark Airport. He gets $20,600. The teller confirms that on Valentine’s Day, February 14^th, the rate was 18. Today is April 4^th, 2020, and the rate is 26, plus a 10% fee.

What can Luis do? He just lost 58%. What can small businesses procuring goods from foreign countries in foreign currency do, if they have already collected payment in full? Please leave your comments below.

Note: one participant said that Luis should get Jenny the necklace, regardless.

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February 13, 2022 by George Benaroya 3 Comments

Should Jenny accept credit cards?

Jenny is a student who runs a high-end shoe business on the side. A friend of hers produces high-quality, made-to-order shoes, which Jenny then sells to wealthy shoppers in NYC for $1,000 each. The cost to make each pair of shoes is $300.

Jenny gets paid in cash. A friend told her that she should accept credit cards.

Another friend works in Marketing. She told her clients may not have $1,000 cash on them. By accepting credit cards, she could also take orders in advance.

One friend works in Finance. He told her that if she accepts credit cards, she will have to pay credit card fees, duties, sales tax, and income tax. There will be an electronic trace of the transaction. She doesn’t mind paying all taxes but is worried about all the paperwork she will need to fill in.

Would you recommend Jenny to accept credit cards?