Question

Give four reasons why and when a strong USD would cause US-based MNCs to worry.

Answer 1

Strong USD or appreciation of USD has bad effects on MNCs in various ways which makes USA based MNCs to worry-

i) It makes goods expensive - A higher exchange rate ( for example- appreciation of USD from 0.78 CAD/dollar to 1.28 CAD/dollar) makes the relative price of the goods produced by MNCs to be higher and making the good expensive than before.

ii) Loss of export- with increase in price of goods overseas consumers might turn away from those USA based brands, resulting in loss of export.

iii) declining income - MNCs that are USA based will suffer as the income they earn from Foreign sales will decrease in value on their balance sheet.

Iv) Because of appreciation, investors of those MNCs will be negatively impacted and this will hurt company stocks.