Random Change in Impact on Firms\' Cash Flow Competitiveness Exchange Rate forei

Question

Random Change in Impact on Firms' Cash Flow Competitiveness Exchange Rate foreign currency appreicates competive industry ome currency depreciates) Exporters foreign currency depreicates home currency apreciates) foreign currency appreicates ome currency depreciates) Exporters uncompetitive industry foreign currency depreicates home currency apreciates) foreign currency appreicates ome currency depreciates) competive industry Importers foreign currency depreicates home currency apreciates) foreign currency appreicates ome currency depreciates) Importers uncompetitive industry foreign currency depreicates home currency apreciates) Economic Exposure

Explanation / Answer

Working notes:

(1) Impact on Cash flow has been decided on appreciation/depreciation of currency on the exporter/importer firm's cash flow.

(2) When firms are trading at a global level, industry competitive does not alter the effects of currency appreciation or depreciation.

(3) Economic exposure is Positive if it increases GDP, negative if it decreases GDP.

(4) Question is silent on what "Strategy" means, so this column is filled-in to the best of my understanding.

Impact on CF Economic Exposure Strategy Exporters Competitive FX Appreciates Export (CF) Increases Positive Increase Production of Exportables, GDP will increase FX Depreciates Export (CF) Decreases Negative Decrease Production of Exportables, GDP will decrease Exporters UnCompetitive FX Appreciates Export (CF) Increases Positive Increase Production of Exportables, GDP will increase FX Depreciates Export (CF) Decreases Negative Decrease Production of Exportables, GDP will decrease Importers Competitive FX Appreciates Import (CF) Decreases Positive Reduce Import of goods from abroad, GDP will increase FX Depreciates Import (CF) Increases Negative Increase Import of goods from abroad to meet domestic demand, but GDP will decrease Importers UnCompetitive FX Appreciates Import (CF) Decreases Positive Reduce Import of goods from abroad, GDP will increase FX Depreciates Import (CF) Increases Negative Increase Import of goods from abroad to meet domestic demand, but GDP will decrease

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