Suppose that the euro appreciates from 100 per 1 to 120 per

Suppose that the euro (€) appreciates from $1.00 per €1 to $1.20 per €1. Determine whether the underlined individuals listed below would see that appreciation as a good or a bad thing.

         a.       A U.S. business buys €10,000 of chemicals from a German company.

         b.      An Italian clothing company buys $100,000 of leather from a U.S. leather maker.

         c.       A U.S. resident has a retirement account totaling €500,000 in a German bank.

         d.      A U.S. company must make an interest payment of €25,000 to the French bank from which it borrowed last year.

Solution

a. this business firm is the looser and they need to pay higher units of dollars to get 10,000 Euros. because the US firm have to pay interms of dollars in this transaction.

b. the clothing company is the benefited one. they will pay the fixed units/amount of dollars

c. the US resident is benefited one. if he exchanges the Euros into dollars now, he will get more units of dollars

d. the US company face the burden, the thing is bad to them.