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John Moffat.
John Moffat.-
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alikhakar
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Ques 25 bpp kit mcq FM environment.
Which of the following organisations are likely to benefit from high price inflation.
Ans – A. org with karge no. Of long term payables. I understand this is correct ans. But why the second option is also not correct which is- B. ” an exporter of a country with relatively low inflation.” If inflation is higher in our country then our domestic currency will weakened in relation to that currency right ?
John Moffat
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What you say is true in that in theory the weaker currency will ‘cancel’ out the higher cost of the goods. However this is only in theory and is only looking at the effect of inflation on the exchange rate – in practice many other factors affect exchange rates. Even if the two things did exactly cancel each other out, then it would not result in a benefit to the organisation, which is what the question asked – it would only be a benefit if they were to sell more, and there is no reason for that to be the case.
alikhakar
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