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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

An Indian software exporter invoices a US client in US dollars. If the rupee depreciates against the dollar and nothing else changes, what is the effect on the exporter's rupee revenue per dollar invoiced?

Rupee revenue per dollar rises. When the rupee depreciates, each dollar buys more rupees, so a fixed dollar invoice converts into a larger rupee amount for the exporter, other things being equal.

  1. ARupee revenue per dollar risesCorrect
  2. BRupee revenue per dollar falls
  3. CRupee revenue per dollar is unchanged because the invoice is in dollars
  4. DRupee revenue falls because dollar prices must be cut
  5. Rupee revenue is unchanged because exports are zero-rated for tax

Explanation

Each dollar received converts into more rupees when the rupee depreciates. The invoice amount in dollars is fixed, but its rupee value rises. The option saying revenue is unchanged confuses the invoice currency with the value of that currency in rupees.

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