Assume an American company sells $10 million in goods to a German firm. The Amer

Question

Assume an American company sells $10 million in goods to a German firm. The American company will receive less than $10 million in revenues if (assume no transactions to prevent exchange rate risk):

They are paid in dollars and the dollar depreciates between the date of the order and payment.

They are paid in euros and the euro appreciates between the date of the order and payment.

They are paid in euros and the euro depreciates between the date of the order and payment.

They are paid in dollars and the dollar appreciates between the date of the order and payment.

They are paid in dollars and the dollar depreciates between the date of the order and payment.

They are paid in euros and the euro appreciates between the date of the order and payment.

They are paid in euros and the euro depreciates between the date of the order and payment.

They are paid in dollars and the dollar appreciates between the date of the order and payment.

Explanation / Answer

Ans: C

American company sells $10 million in goods to a German firm. The American company will receive less than $10 million in revenues if between date of transaction and receiving of payment euro depreciate and they recieve payment in euro. while in case of dollar payment there will no requirement of exchange transaction by american firm, so no loss in this case.

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