Question
For firms engaged in international lending and borrowing, __ swings in exchange rates
(A) trade-offs and risks an enormous effect on profits.
(B) foreign portfolio investment
© foreign direct investment
(D)
(A) trade-offs and risks an enormous effect on profits.
(B) foreign portfolio investment
© foreign direct investment
(D)
Ask by Campos Erickson. in the United States
Mar 23,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
Exchange rate swings have a significant impact on the profits of firms involved in international lending and borrowing due to the associated trade-offs and risks.
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Mind Expander
When it comes to international lending and borrowing, exchange rate fluctuations can truly make or break a business’s bottom line. Imagine a lender in the U.S. providing a loan in dollars to a firm in Europe; if the euro suddenly weakens against the dollar, the amount the borrower needs to repay can skyrocket, leading to potential losses.
One fascinating example is the 1997 Asian Financial Crisis, where sudden currency devaluation wreaked havoc on international lenders. Many firms found themselves scrambling to meet repayment obligations as their local currencies lost value overnight, illustrating the very real stakes in the game of exchange rates!
