Q: Company A’s reported sales (in LC) in 2006 reflect a 20% increase in sales from 2005, and the average exchange rate for 2006 represents a 20% decrease from 2005. As a result of these changes, the amount of sales reported in US Dollars will likely: A. no change from 2005 B. decrease by 4 percent from 2005 C. decrease by 8 percent from 2005 D. decrease by 6 percent from 2005 My answer is A, based on following steps: 1) Sales 2005 = 1 LC, Sales 2006 = 1.2 LC 2) Exchange Rate 2005 = 0.83333 LC/, Exchange Rate 2006 = 1 LC/ sales 2005() = 1 / 0.83333 = 1.2 sales 2006() = 1.2 / 1 = 1.2 But A is incorrect.

I would say B looking at it this way. Base it off of LC 1. 1*increase in sales of 20% = 1.2 1.2 * decrease of 20% = 1.2 * .8 = .96

I think its B… Lets say LC was 1 exchange rate was 1$/LC so US = 1 in 2005 LC in 2006 = 1.20 and exchange rate is 0.80/LC (20% decrease will be .80 not .8333) so 2006 USD is 1.20*0.80 = 0.96 (decrease 4%)

B is the right answer!

Yes, B is correct. I misunderstood that it’s the exchange rate, rather than LC, decrease 20%. Actually LC appreciated 20% relative to US$. Now it makes sense. Thanks.

tricky question …