Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light fixtures and sells them to Japan, denominated in Japanese yen. Its subsidiary pays all of its expenses, including the cost of goods sold, in U.S. dollars. The Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates against the U.S. dollar, the Hong Kong subsidiary's revenue will ____, and its expenses will ____.
A) increase; decrease
B) decrease; remain unchanged
C) decrease; increase
D) increase; remain unchanged

Question

​Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light fixtures and sells them to Japan, denominated in Japanese yen. Its subsidiary pays all of its expenses, including the cost of goods sold, in U.S. dollars. The Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates against the U.S. dollar, the Hong Kong subsidiary's revenue will ____, and its expenses will ____.
A) ​increase; decrease
B) ​decrease; remain unchanged
C) ​decrease; increase
D) ​increase; remain unchanged

Quizplus · Accepted Answer

Since the subsidiary sells its products to Japan in Japanese yen, if the yen appreciates against the U.S. dollar, the value of the sales when converted back to U.S. dollars will increase. The expenses, paid in U.S. dollars, will remain unchanged because the Hong Kong dollar is pegged to the U.S. dollar, and the expenses are denominated in U.S. dollars.

​Lampon Co

Lampon Co