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Anvisha [2.4K]
2 years ago
14

Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preced

ing statement is valid or invalid.
a. The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so higher inflation rates would result in higher interest rates.
b. The statement is invalid, because the nominal interest rate is independent of the inflation rate.

If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be ______________ by the losses from currency appreciation. The currency of a country with a higher inflation rate than the U.S. inflation rate will ____________ over time against the dollar.
Business
1 answer:
lys-0071 [83]2 years ago
6 0

Answer:

b.the statement is invalid because the nominal

Explanation:

pa brainliest po

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2 years ago
A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its ex
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Answer:

A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to reduce its estimate of the previously computed net present value.

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The difference between the present value of cash inflows and the present value of cash outflows over a period is referred to as the net present value (NPV).

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The company should therefore reduce the estimates because it will increase the discount rate which would, in turn, impact the net present value (NPV) and drag it down to lower value.

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3 years ago
Read 2 more answers
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