Question：A UK based manufacturing company with spare capacity imports a considerable proportion of its materials and components from abroad, and exports about 20% of its output. The foreign exchange value of sterling declines by 10%
What will be the consequences for the company's revenues and unit variable costs respectively?
A. Will fall Will rise
B. Will fall Will fall
C. Will rise Will rise
D. Will rise Will fall
The correct answer isthat revenues and costs will rise.
解析：The decline in the value of sterling will make the company's goods cheaper abroad, since exports will probably be priced in sterling. (For example, if a product sells for ?100 and the exchange rate declines from $1.50 = ?1 to $1.35 = ?1, its cost to a US buyer would fall from $150 to $135). Lower prices to foreign buyers will increase overseas demand and exports.
The fall in sterling's value will also make imported goods more expensive to buy, because the company will need more sterling to pay for goods invoiced in a foreign currency. Unit variable costs will therefore rise and contribution/profit margins will be squeezed.
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