A decrease in the direct exchange rate as a result of foreign inflation results in an unrealized inflationary holding gain to the extent that foreign fixed assets are financed with nonindexed debt.

Question

Quizplus · Accepted Answer

A decrease in the direct exchange rate due to foreign inflation can lead to an unrealized gain on foreign fixed assets financed with nonindexed debt, as the debt's real value decreases while the asset's value remains stable or increases in local currency terms.

A Decrease in the Direct Exchange Rate as a Result