Which of these would by hurt by an appreciation of their domestic currency?

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Question

Which of these would by hurt by an appreciation of their domestic currency?

Check all correct answers
Each choice is worth 1 point, which you will receive if you correctly either check or do not check the choice

BlackTom AI · Accepted Answer

An appreciation of the domestic currency reduces the domestic-currency value of foreign-currency‑denominated receipts and foreign assets, while lowering the domestic cost of foreign-currency payments.

1. Relevant knowledge points and concepts
- Currency appreciation: domestic currency becomes stronger, so each unit of domestic currency buys more foreign currency; conversely, a unit of foreign currency converts into fewer domestic currency units.
- Translation/transaction exposure: foreign-currency revenues and asset values fall in domestic-currency terms when the domestic currency appreciates; foreign-currency liabilities or payments cost less in domestic terms.
- Net effect depends on whether cash flows/assets are denominated in foreign currency and whether the firm is a payer or receiver of foreign currency.

2. Step-by-step reasoning
- Identify which cash flows or asset values are in foreign currency.
- Translate a foreign-currency amount into domestic currency before and after appreciation to see the impact.
- Compare results to determine gain or loss in domestic-currency terms.

3. Example calculations (all intermediate steps shown)
- Suppose a domestic company receives €1,000. Initial rate: 1 EUR = $1.20 → domestic receipts = €1,000 × $1.20 = $1,200.
- After domestic currency appreciation, new rate: 1 EUR = $1.10 → domestic receipts = €1,000 × $1.10 = $1,100.
- Change = $1,100 − $1,200 = −$100 (loss). Thus receiving foreign payment is hurt.
- For assets overseas worth €10,000: initial $ value = €10,000 × $1.20 = $12,000; after appreciation = €10,000 × $1.10 = $11,000 → $1,000 loss.
- For making a payment of €1,000: initial cost $1,200 → after appreciation $1,100 → benefit (cost falls by $100), so not hurt.

4. Why the correct answers are correct
- A domestic company with assets overseas holds foreign-currency-denominated assets; appreciation reduces their domestic-currency valuation, hurting reported value and potential balance-sheet strength.
- A domestic company receiving payment in a foreign currency converts those receipts into fewer domestic currency units after appreciation, reducing revenues in domestic terms.

5. Why the other option is incorrect
- A domestic company making payment in a foreign currency benefits from appreciation because the domestic currency buys more foreign currency, so its domestic-currency payment amount falls. It is not hurt.

6. Conclusion
- The correct answers are: "a domestic company with assets overseas" and "a domestic company receiving payment in a foreign currency," which matches the provided answer.

Which of these would by hurt by an appreciation of their domestic currency? Check all correct answers Each choice is worth 1 point, which you will receive if you correctly either check or do not check the choice多项选择题

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