Question

based in the U.S., has a foreign revenue that exceeds its cost from orders of foreign material. All foreign transactions are denominated in the foreign currency of concern. This firm would _______ a stronger dollar and would _______ a weaker dollar. A. be adversely affected by; benefit from; B. benefit from; be adversely affected by C. be unaffected by; be adversely affected by D. be unaffected by; benefit from E. benefit from; benefit from

Answer 1

Answer:

A. be adversely affected by;  benefit from

Explanation:

For a firm based in U.S, it's home currency is US dollars.

If revenues exceed costs in the foreign market and the net proceeds i.e revenue less costs are denominated in a foreign currency, then upon receipt of foreign currency the firm will have to sell such foreign currency to buy home currency.

So if home currency appreciates, fewer US Dollars would be received. Similarly if USD depreciates, fewer foreign currency would be required to purchase US dollars and hence in this case, the receipts would be more.

Thus, an exporter who receives foreign currency would lose if the home currency appreciates and foreign currency depreciates.

Similarly, the exporter would gain if the home currency depreciates and foreign currency appreciates.