Real-Life Decision Making
You're a currency broker working for a private company. A local businessman
who owns a computer company has just called up and tells you he wishes to
purchase $52,000 worth of currency in Japanese yen. He does a lot of overseas
business and could prove to be a profitable client.
After asking him a few questions, you find out which bank he usually deals
with. You know that he will also go to the bank and ask them what rate of
exchange they can offer him.
You want this new client, so you want to undercut the bank's rate. However,
you're also in business for profit, so you still want to make money.
You phone the bank and ask what their rate of exchange on Japanese yen
is today. They tell you that it is 0.014591. You inform them that you wish
to purchase a substantial amount of yen and ask if they can give you a better
rate. They say no.
You check further with this client to find out how long he has been with
the bank. You find out that he has been their business client for 14 years.
You have a hunch that because he is a long-term client, he might get a preferential
rate.
You could sell the currency to the client for 0.013725. Your rationale
is that you will be undercutting the bank, yet making a profit as you bought
the currency last week for 0.011964.
Or you could sell the currency to the client for 0.011964. You'd definitely
be beating any "special" deal that he might get from the bank, but you wouldn't
make any money on this transaction.
You are faced with a decision. How much should you charge him?