You are the CEO of a U.S.firm considering building a factory in Chile.If the dollar appreciates relative to the Chilean peso,then other things the same
A)it takes fewer dollars to build the factory.By itself building the factory increases U.S.net capital outflow.
B)it takes fewer dollars to build the factory.By itself building the factory decreases U.S.net capital outflow.
C)it takes more dollars to build the factory.By itself building the factory increases U.S.net capital outflow.
D)it takes more dollars to build the factory.By itself building the factory decreases U.S.net capital outflow.

Question

Quizplus · Accepted Answer

If the dollar appreciates relative to the Chilean peso, it means that the exchange rate has become more favorable for the U.S. firm. It will need fewer dollars to purchase the same amount of Chilean pesos required for the construction of the factory. Therefore, building the factory will become cheaper, and the firm will need to invest fewer dollars. However, as building the factory involves investing in a foreign country, it increases the U.S. net capital outflow.

You Are the CEO of a U