Question

There are a number of factors influencing the US dollar's recent performance.

What are some of the more significant risks to US-based multinational companies given a stronger dollar?

Given the current environment in the US, what particular companies are most at risk?

What is your recommendation regarding policy affecting the dollar?

Lastly, how likely is it true that a weaker dollar could lead to higher inflation in this environment?

Answer 1

1. Revenues of multinational companies which are based in the United States is bound to go down as their realizations are mostly in the other currencies and any increase in dollar prices will lead to a significant decline in revenues.

They will have to pay their employees in dollars so there expenditures will go up minimizing their overall profit.

2. Companies which are most risk prone to current environment are those who have their units mostly in China and Europe as these countries have announced total shutdown.

3. Policy affecting dollars must be framed in such a way that the companies revenues are not much affected and rate should be cut in order to give boost to overall demand.

4. A weaker dollar may cause inflation but it depends upon different scenarios . One could be weaker dollar buys lesser in foreign goods , this shoots up the price of imports leading to an inflation like scenario.