Chicago based Corporation X has a number of importing transactions with companies based in UK. Importing activities result in payables. If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates?
A) Option A
B) Option B
C) Option C
D) Option D

Question

Chicago based Corporation X has a number of importing transactions with companies based in UK. Importing activities result in payables. If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates? 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

Option B shows that changes in the indirect exchange rates will result in changes in the payables amount in USD. This is because if the settlement currency is GBP, the payables will be denominated in GBP. Any changes in the indirect exchange rate between USD and GBP will affect the payables amount in USD. Direct exchange rates will not have an impact as they do not involve the settlement currency. Option A is incorrect as changes in direct exchange rates will not affect the payables amount in USD. Option C is incorrect as Chicago based Corporation X is the importer and the payables will be denominated in GBP, not USD. Option D is incorrect as it refers to changes in the direct exchange rates between the importers and other companies, which will not affect the payables amount in USD.

Chicago Based Corporation X Has a Number of Importing Transactions