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

Quizplus · Accepted Answer

The revenue will increase because the yen appreciates, meaning more yen per dollar, increasing revenue in dollar terms. Expenses remain unchanged as they are in U.S. dollars and the Hong Kong dollar is pegged to the U.S. dollar.

Lampon Co Is a U