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Category > Economics Posted 22 Jun 2017 My Price 6.00

relationship between corporate profits for multinational corporations and exchange rates

There is a relationship between corporate profits for multinational corporations and exchange rates. Think of McDonald's for example. When a McDonald's restaurant in Britain reports its profits at the end of this month, they report it in British Pounds. However, when that restaurant sends its profits to the headquarter in Oak Brook IL, they exchange them with US dollars. Let's assume that the exchange rate today is 1 British Pound for 1.52 US dollars. If McDonald's makes 1,000 British Pounds in profits, this translates into $1,520. If the value of the dollar increases relative to the British Pound, where the exchange rate is 1 US dollar = 1 British Pound, then the reported profits in US dollars will be $1,000 (instead of $1,520 before the increase in the value of the dollar). 

 

Do you think corporations and business have a stronger incentive to outsource when the dollar is strong or when the dollar is weak? Why? 

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SuperTutor
(15)
Status NEW Posted 22 Jun 2017 07:06 AM My Price 6.00

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