Question

A U.S. company that buys from a supplier whose currency is increasing against the dollar will most likely have to do which of the following if the price is expressed in the supplier's currency?

A) pay less in dollars than originally expected
B) pay more in dollars than originally expected
C) pay the same amount of dollars as originally expected
D) pay part of the transaction in the supplier's currency

Answer 1

A U.S. company buying from a supplier with a strengthening currency against the dollar will have to B) pay more in dollars than anticipated due to the unfavorable exchange rate.

Step-by-step explanation:

If a U.S. company buys from a supplier whose currency is increasing against the dollar and the price is expressed in the supplier's currency, the company will most likely B) pay more in dollars than originally expected. This situation occurs because the stronger the supplier's currency, the more dollars it will cost to buy the same amount of that foreign currency. Consequently, the cost of purchasing goods or services from that supplier becomes more expensive in terms of U.S. dollars.

When the exchange rate increases, it means that the U.S. dollar buys less foreign currency, leading to a higher cost for imports. On the other hand, a weaker dollar would increase the 'price' of foreign investments, as more dollars would be needed to purchase the same amount of foreign assets. For companies dealing in international trade or investments, understanding the implications of currency fluctuations is critical for financial planning and decision-making.