Question

If your U.S. company's European subsidiary has made a sales for euro 500,000, and the euro depreciates from $1=EUR1.40 to $1=EUR1.30 , your firm has a ....

Answer 1

Here Euro has appreciated and dollar has depreciated as now less unit of euro will be required to buy one dollar

Company has subsidiary in europe that has made sales of euro 500,000, when it will convert it in $ it will get more $ as compared to earlier exchange rate

For eg

When exchange rate was 1$= 1.4 EUR, Company would able to realize ( 500,000/1.4) $ 357142.8571

and

When exchange rate is 1$= 1.3 EUR, Company would able to realize ( 500,000/1.3) $ 384615.3846

Thus the firm will have profit from exchange rate fluctuation

[ Note There must be error in exchange rate than, I guess exchange rate must be as follows 1 Euro = 1.4$ and now euro has depreciated to 1 Euro = 1.3$ , Now coming to our question if company will convert its euro to $ than it will face loss of 50,000 (500,000*(1.4-1.3)) Thus answer D. Loss of $50,000]