Question：The income statement of a subsidiary of Mondial Inc is demonstrated in Euros. The rate of exchange between dollars and the Euro starts the year at €1.6 : $1 and moves evenly over the course of the year. In scenario A, the closing rate is €1.552 : $1 and in scenario B the closing rate is €1.68 : $1.
Calculate the percentage change in the company's profits as reported in dollars under the scenario where the local currency appreciates as against the scenario where it depreciates against sterling.
A. 4.1% increase.
B. 3.9% decrease.
C. 4.1% decrease.
D. 3.9% increase.
The correct answer is: 4.1% increase.
解析：In Scenario A, the Euro appreciates so that the average rate over the year is 1.576:1.
In Scenario B, the Euro depreciates with the result that the average rate over the year is 1.64:1.
If we assume that the local profits are €1000, the following can be seen:
Under Scenario A, reported profits are 1000/1.596 = $634.52
Under Scenario B, reported profits are 1000/1.64 = $609.76
The increase in profit under Scenario A as against Scenario B is 4.1%
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