Question

Select all that are true regarding firm concerns in relation to the fx market:

A. Firms are concerned that a depreciation of the domestic currency will decrease the relative price of foreign-sourced substitutes (i.e., imports)
B. decreasing domestic demand for their output Firms are concerned about foreign demand for their domestic production, which could lead to altering their quantity of output
C. domestically Firms are concerned about the relative price of foreign-sourced factors of production now and in the future since this could materially alter their decisions regarding which products to produce
D. domestically Firms with foreign operations are concemed about their reported performance on accounting reports domestically

Answer 1

Firms are concerned about the effects of domestic currency depreciation on imports, changes in foreign demand impacting domestic production and pricing, the cost of foreign-sourced production factors, and the impact of exchange rates on accounting reports for firms with foreign operations.

Step-by-step explanation:

Regarding firm concerns in relation to the foreign exchange market (FX market), several points are true:

• Firms are concerned that a depreciation of the domestic currency will decrease the relative price of foreign-sourced substitutes (imports), thereby decreasing domestic demand for their output.
• Firms are concerned about foreign demand for their domestic production, which could lead to altering their quantity of output domestically.
• Firms are concerned about the relative price of foreign-sourced factors of production now and in the future since this could materially alter their decisions regarding which products to produce domestically.
• Firms with foreign operations are concerned about their reported performance on accounting reports domestically due to the effects of exchange rate fluctuations.