Which of the following best describes the situation in a hyperinflationary economy? Purchasing power of the foreign currency will: A) quickly deteriorate and the foreign currency will be rapidly appreciating against the reporting currency. B) dramatically appreciate and the foreign currency will be rapidly appreciating against the reporting currency. C) dramatically appreciate and the foreign currency will be rapidly depreciating against the reporting currency. D) quickly deteriorate and the foreign currency will be rapidly depreciating against the reporting currency.
A
D country with inflation is foreign currency and will dep agains reporting
D.
D
Can someone please explain the 2nd part: “and the foreign currency will be rapidly depreciating against the reporting currency” thanks.
you own the parent company in the US, let’s assume us$ is very stable. you have a subsidiary in Brazil where inflation is high (hyperinflation is present). Temporal method should be used for the subsidiary with US$ being the reporting currency. Since inflation is higher in Brazil their currency is going to depreciate and its purchasing power is going to deteriorate.
I don’t know why i keep associating inflation with currency appreciation!
take the example of india … inflation is rising … rupee is falling against the dollar !
^^ not the best example. there is only partial convertibility on the capital account in india.plus the US actually cut rates while rates in india are up and going further up. there are too many factors in play . but we dont need to go there for this exam
silly question but the subsidiary’s revenues is going to be lower or higher as the hyperinflationary situation continues? Also, the parent’s revenues (pre-hyperinflaionary and post) is going to be higher or lower?
Dsylexic Wrote: ------------------------------------------------------- > ^^ not the best example. there is only partial > convertibility on the capital account in > india.plus the US actually cut rates while rates > in india are up and going further up. there are > too many factors in play . but we dont need to go > there for this exam agreed … it was only an easy analogy so i can remember the relation for the exam…
How do u determine hyperinflation if 20%, 25%, 35% in last three years? (1.20*1.25*1.35 ) - 1 = 1.025 OR .20+.25+.35 = 0.80
(1.20*1.25*1.35 ) - 1 = 1.025
Mistake.
Usif Wrote: ------------------------------------------------------- > silly question but the subsidiary’s revenues is > going to be lower or higher as the > hyperinflationary situation continues? > > Also, the parent’s revenues (pre-hyperinflaionary > and post) is going to be higher or lower? can someone please answer my Q ^^!
Usif Wrote: ------------------------------------------------------- > silly question but the subsidiary’s revenues is > going to be lower or higher as the > hyperinflationary situation continues? > > Also, the parent’s revenues (pre-hyperinflaionary > and post) is going to be higher or lower? Not sure what you mean