Produces goods and sells all products to retail store

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Reference no: EM132046932

1. Maura Watts Co. is a U.S. manufacturing firm that produces goods in the U.S. and sells all products to retail stores in the U.K.; the goods are denominated in pounds. It finances a small portion of its business with pound denominated loans from British banks. Which of the following is true? (Assume that the amount of products to be sold is guaranteed by contracts.)

A) The dollar value of sales is higher if the pound depreciates against the dollar.

B) The dollar value of sales is unaffected by the pound’s exchange rate.

C) Both of these are true.

D) Neither of these is true.

2. Xiling Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of materials attributable to the purchase of Canadian goods is C$6 million. Its interest expense on Canadian loans is C$4 million. Given these exact figures above, the dollar value of Whitewater’s “earnings before interest and taxes” would _______ if the Canadian dollar appreciates; the dollar value of Whitewater’s cash flows would _______ if the Canadian dollar appreciates.

A) Increase; increase

B) Decrease; increase

C) Decrease; decrease

D) Increase; decrease

E) Increase; be unaffected

Reference no: EM132046932

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