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Exchange Rate as a Policy Tool; Whitewater Earnings Before Interest and Taxes

It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce unemployment. Which of the following is an appropriate action given this scenario?

weaken the dollar.
strengthen the dollar.
buy dollars with foreign currency in the foreign exchange market.
implement a tight monetary policy.

Whitewater Co. is a U.S. company with sales to Canada amounting to C$8 million. Its cost of goods sold 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 "earnings before taxes" would _______ if the Canadian dollar appreciates.

increase; increase
decrease; increase
decrease; decrease
increase; decrease
increase; be unaffected

Solution Preview

By Phillips Curve, unemployment is negatively correlated with inflation rate. Thus, to reduce unemployment, the ...

Solution Summary

In a brief two paragraphs, the concepts and solutions are explained.

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