Question

Which of the following is an example of economic exposure for a US firm?

a) An increase in the pound's value increases the U.5, frrm's cost of Enitish pound payables.
b) A decrease in the peso's value decreases a U.S, firm's cost of Mexican pero payables.
c) A decrease in the Swiss trane's value decreases the dollar value of interest payments on a US. firm's Swiss franc deposit at a Swisabsnk- US redenominates her curtency.
d) An increase in the doliar's value hurts a U.S. firm's domestic sales because foreign corngetitors can increase their sales to US. customers

Answer 1

Option d) 'An increase in the dollar's value hurts a U.S. firm's domestic sales because foreign competitors can increase their sales to U.S. customers' is an example of economic exposure for a U.S. firm.

Step-by-step explanation:

Economic exposure refers to the risk that a firm's financial position and cash flows may be affected by changes in exchange rates. From the given options, option d) 'An increase in the dollar's value hurts a U.S. firm's domestic sales because foreign competitors can increase their sales to U.S. customers' is an example of economic exposure for a U.S. firm. This is because when the dollar strengthens, it makes the firm's products relatively more expensive for foreign customers, leading to a decrease in domestic sales.