Question

Suppose you are a producer of asphalt located in China. Petroleum is one of the major inputs for asphalt. Your company must import petroleum which is sold in a world market and priced in U.S. dollars. How are the profits of your company affected when the yuan appreciates against the dollar?

International Finance econ

Answer 1

The profit of my company will increase with an appreciation of Yuan against the dollar.

Let's take an example to understand this better. As an asphalt producer based in China our company import 500 yuan worth of petroleum. Let's assume the exchange rate is 5 yuan / Dollar. So my company is spending $100 on imports of petroleum.  

Now, due to recent fall in demand for the dollar, the yuan appreciated to 4 yuan per dollar. To import the same amount of petroleum the company has to spend only 400 yuan and they will benefit by 100 yuan, increasing their profit.

An appreciation in the local currency is always beneficial for the imports and harmful for the local exports. Petroleum, in this case, is the imports for the company.