Question

Appreciation of the U.S. dollar will have the following impact on McDonald's:

Answer 1

Answer:

C. lower profits, because foreign profits will be reduced when measured in dollars

Explanation:

When U.S Dollar i.e domestic currency for McDonald's appreciates, the foreign franchisees of McDonald's which earn revenues in foreign currencies will be affected.

Foreign franchisees earn revenues in their own domestic currency say in euros or pounds. A major part of those profits need to be repatriated to the parent Co i.e McDonalds, USA. Those profits shall be converted into domestic currency i.e USD which would yield lesser dollars than before.

For example previous exchange rate was 1$ = 50 Ruppes and now the rate has increased to 1 $ = 60 rupees.

A Franchisee in India makes 5 million rupees profit.

At previous exchange rate, upon conversion yields $1,00,000

At new exchange rate, the receipts would be $83,333

As can be seen, the profits have reduced.