A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true?
A) If the foreign currency appreciates, a foreign exchange gain will result.
B) If the foreign currency depreciates, a foreign exchange loss will result.
C) No foreign exchange gain or loss will result.
D) If the foreign currency appreciates, a foreign exchange loss will result.
E) Any gain or loss will be included in comprehensive income.

Question

Quizplus · Accepted Answer

If the foreign currency appreciates, the U.S. company will have to pay more in U.S. dollars to settle the foreign currency-denominated liability, resulting in a foreign exchange loss.

A US Company Buys Merchandise from a Foreign Company Denominated in in the Foreign