Question

If Citigroup (one of the largest banks in the world and where I worked) makes loans to an Italian corporation in Euros, which would they benefit the most from — a weaker or stronger US$ (with regard to the Italian loans)?

Briefly discuss how an increase in the value of the US Dollar could impact a US investor with significant foreign investments.

Briefly discuss how a decrease in the value of the US Dollar could impact a foreign investor with significant US investments.

Briefly discuss how a decrease in the value of the US Dollar could impact a US-based manufacturer that sells its products internationally.

Briefly discuss how a decrease in the value of the US Dollar could impact a foreign-based manufacturer that sells its products in the US.

Today the exchange rate is 1.0422 Canadian Dollars per US$. Last year, the exchange rate was 1.1304 Canadian Dollars per US$. Has the US$ strengthened or weakened relative to the Canadian Dollar over the last year?

Answer 1

1) With regard to the Italian loan, bank will benefited by Stronger US$ at the time of disbursement of loan as bank will have to pay less number of US$ while releasing the loan in terms of Euros,

At the time of recollection of the loan and interest bank will be benefited by Weaker US$ as the collection will be in Euro Currency and that can be used to convert higher numbers of US$.

2) Appreciation of US$ will impact negatively to US investor having investment in foreign country. If US$ appreciates the investor will be able to buy less numbers of US$ while converting his Foreign investment into US$ resulting the actual rate of return on amount invested in terms of foreign currency will be significantly low.

3) Depreciation of US$ will impact negatively to foreign investor having investment in US. If US$ depreciates the investor can buy less numbers of domestic currency while converting his US$ investment into domestic currency resulting the actual rate of return on amount invested in terms of domestic currency will be significantly low.

4) US based manufacturer who exports internationally will be benefited by Depreciation of US$, as he will receive payments from other countries and while exchanging the amount received in other currency will buy higher numbers of US$ for him.

5) Depreciation of US$ will impact negatively to foreign based manufacturer, as while converting his payments received in US$ he will get less number of domestic currency.

6) today we are getting 1.0422 Canadian dollar by paying 1 US$

Last Year we were getting 1.1304 Canadian Dollar by paying 1 US$

here US$ has been weakened against Canadian Dollar as purchasing power of US$ against Canadian Dollar has been Decreased.