Your firm has subsidiaries throughout the world. Due to the recent depreciation of the dollar against most foreign currencies, the dollar value of your foreign sales has declined as reflected on the parent's financial statements, even though sales growth is strong. The following was an example of a short run exchange rate risk.

Question

Quizplus · Accepted Answer

The scenario described actually indicates that the dollar depreciation against most foreign currencies would increase the dollar value of foreign sales when converted back to dollars for reporting on the parent's financial statements, not decrease it. This is because the foreign currencies now buy more dollars than before, making the foreign sales worth more in dollar terms.

Your Firm Has Subsidiaries Throughout the World