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    Exchange rate fluctuation and company profitability

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    If the U.S. dollar were to appreciate substantially, what steps could a domestic manufacturer such as Cummins Engine Co. of Columbus, Indiana, take in advance to reduce the effect of the exchange rate fluctuation on company profitability:

    key words: Demand and forecasting, managing exports.

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    Solution Preview

    The effect of the currency appreciation depends on how much business a company does overseas. If its sales and costs are all domestic, the appreciation has litte effect. If it buys goods overseas, a higher dollar will benefit it. If it exports goods, a higher dollar means that its goods will appear expensive relative to foreign goods. A manufacturing exporter will have the majority of its revenues in U.S. dollars. So, the company may have very little ...

    Solution Summary

    Effects of currency appreciation on domestic manufacturers are examined. The advanced why to reduce the effect of the exchange rate fluctuation on company profitability is determined.