Which of the following does NOT illustrate the benefit of reduced exchange rate variability that comes with the adoption of a single currency?
A) An Austrian carpet retailer that had previously limited its imports of Belgian carpets because of the uncertainty of the future value of the Belgian franc now imports more Belgian carpet.
B) A Spanish bank that had previously not had a subsidiary in Italy because of the unpredictability of the future value of the Italian lira now buys an Italian bank.
C) A German bakery company that had previously paid its bank in order to buy French francs forward to pay for imports of French wheat no longer incurs the cost of engaging in forward foreign exchange contracts.
D) An Italian company that had not previously imported Dutch flowers because there was little demand for them now begins to import flowers from the Netherlands and promote them heavily.

Question

Quizplus · Accepted Answer

Option D does not illustrate the benefit of reduced exchange rate variability that comes with the adoption of a single currency. The reason for not importing Dutch flowers previously was not due to uncertainty in exchange rates but because of lack of demand. The adoption of a single currency would not address this issue. The other options demonstrate benefits such as increased imports, expansion into new markets, and reduced costs due to no longer needing to engage in forward foreign exchange contracts.

Which of the Following Does NOT Illustrate the Benefit of Reduced