Question
1. a) Explicate the main reason a foreign currency appreciation increases the profitability of a foreign investment, ceteris paribus. Direct your explication to the conversion
1. a) Explicate the main reason a foreign currency appreciation increases the profitability of a foreign investment, ceteris paribus. Direct your explication to the conversion of debt payment (principal and interest) and dividends from the foreign currency, let us say, ringit to dollars. Everything else presuppose remains constant. Do everything above assuming the foreign currency depreciates against the dollar. Now, how would the results alter, if we additionally had sales from Malaysia to China, and the renminbi revalued against the ringit by 10% yearly for the next 20 years? Presuppose the volume of sales in China are double what they are in Malaysia in the beginning. Also, presuppose the price elasticity of demand is - 3 for the product in China. Presuppose secondly the expenses are incurred in ringit.
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