Assume a U.S. exporter sells to a British importer and denominates the sale in dollars. If the dollar rises over time against the British pound,what types of economic exposure and/or possible strategies could the exporter or importer face?
A) The U.S. exporter has no economic risk because the sale is denominated in dollars.
B) The British importer has only economic risk if the dollar falls against the pound.
C) The U.S. exporter could lower prices in order to reduce the cost to the importer and thereby keep up sales volume.
D) The U.S. exporter does not face an economic exposure, but the British importer does because it must pay in dollars.

Question

Quizplus · Accepted Answer

D  The U.S. exporter might lower prices to maintain sales volume if the dollar strengthens, making goods more expensive for the British importer. The British importer faces economic exposure as it must pay more in pounds if the dollar rises.