1. A firm produces goods for which substitute goods are produced in all countries. Depreciation of the firm’s local currency should:
A) Decrease local sales as foreign competition in local markets is reduced.
B) Decrease the firm’s exports denominated in the local currency.
C) Decrease the returns earned on the firm’s foreign bank deposits.
D) Decrease the firm’s cash outflow required to pay for imported supplies denominated in a foreign currency.
E) None of these.
2. If a U.S. firm’s cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a _______ overall impact of the Swiss franc’s depreciation against the dollar on _______.
A) Positive; interest expenses
B) Positive; gross profit
C) Negative; gross profit
D) Negative; interest expenses