Question

Angela, Inc., a U.S. company, had a euro receivable from exports to Spain and a British pound payable resulting from imports from England. Angela recorded foreign exchange gain related to both its euro receivable and pound payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

Answer 1

Answer:

Euro:Increase

pound:Decrease

Explanation:

A lower-valued currency makes a country's imports more expensive and its exports less expensive in foreign markets. A higher exchange rate can be expected to worsen a country's balance of trade, while a lower exchange rate can be expected to improve it

Answer 2

Answer:

The euro appreciated against the dollar, or increased its relative price against the dollar.

The pound depreciated against the dollar, or decreased its relative price against the dollar.

Explanation:

let's assume that both the euro and the pound trade at 1 per $1.50, and the Spanish buyer owes €100 to Angela, while Angela owes £100 to a British vendor.

Since the euro appreciated, it gained value, it now trades at $1.60 for €1, so Angela will receive $160 from the Spanish buyer instead of $150.

Since the pound depreciated, it lost value, it now trades at $1.40 for £1, so Angela will pay $140 to the British vendor instead of $150.