Question

Mr bilal is owner of timboktoo (a timbe factory) which is operating globally. he has manufacturing plant situated in pakistan however his wood products are exported to japan, china and malaysia. Moreover he imports his raw material from kenya. lets assume the value of rupee is low compared to japan,china and malaysia but high compared to kenya.

Q1: What will be the impact of foreign exchange on his sales and purchases?

Answer 1

A high value currency (with respect to Kenya) will result in cost of purchases will go down as imports will become less expensive. A low value currency (with respect to Japan, China and Malaysia) will result in exports becoming less expensive so sales will decrease. Hence, epending on how much the currency has increased and decreased with respect to the importing and exporting countries, on an overall basis, there should not be much difference in the profit from before.