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Que – Which of the following organisations is most likely to benefit from a period of high price inflation?
1)An organisation which has a large number of long-term payables
2)An exporter of goods to a country with relatively low inflation
3)A supplier of goods in a market where consumers are highly price sensitive and substitute imported goods are available
4)A large retailer with a high level of inventory on display and low rate of inventory turnover
My answer – 3rd because if inflation will be there than people will find for new substitute.
However as per book it is 1st ?The 3rd is not correct because if there is high inflation the organisation will have to charge higher prices. They will lose business because customers will buy imported goods instead.
The 1st is correct because high inflation means that the organisations receipts are like to increase, but the amount owing long-term will stay the same. (Suppose you have borrowed money and owe $1,000 repayable in 5 years time. If there is high inflation and your salary is increasing at (say) 10% a year, it will be much easier for you to save enough to repay the $1,000 than if your salary was not increasing)
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