1. A firm produces goods for which substitute goods are produced in all countries. Appreciation of the firm’s local currency should:

A) Increase local sales as it reduces foreign competition in local markets.

B) Increase the firm’s exports denominated in the local currency.

C) Increase the returns earned on the firm’s foreign bank deposits.

D) Increase the firm’s cash outflow required to pay for imported supplies denominated in a foreign currency.

E) None of these.

2. When the dollar strengthens, the reported consolidated earnings of U.S. based MNCs are _______ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are _______.

A) Favorably; favorably affected but by a smaller degree

B) Favorably; favorably affected by a higher degree

C) Unfavorably; favorably affected

D) Favorably; unfavorably affected