IAI Actuarial Core Principles · Business Economics · Importance of international trade
An Indian software exporter invoices US clients in dollars and incurs costs in rupees. The rupee depreciates against the dollar from Rs 80 to Rs 84 per dollar, with dollar prices unchanged. What is the effect on the exporter's rupee revenue per dollar of sales?
Rupee revenue rises by Rs 4 per dollar, because each dollar now converts into Rs 84 rather than Rs 80. Invoicing in dollars fixes the dollar price but leaves the rupee receipts exposed to the exchange rate.
- AFalls by Rs 4
- BRises by Rs 4Correct
- CRises by Rs 5
- DFalls by Rs 5
- Stays unchanged because the invoice is in dollars
Explanation
Each dollar now converts into Rs 84 instead of Rs 80, a gain of Rs 4 per dollar. Invoicing in dollars fixes the dollar price, not the rupee value received. Option Rs 5 confuses the percentage rise (5%) with rupees.
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