[Anonymous]

Can someone explain this simple concept that’s driving me crazy? I keep messing up the BEC multiple choice when it comes to this topic. For example, when a question asks, “what is the effect when a foreign competitor’s currency becomes weaker compared to the US dollar?”

Is there a simple way to understand when to import and export based upon when a currency’s value goes up or down.

Thanks in advance for any help!!

[whitesoxfancpa]

If you're using Becker, open your book to the chart on page B2-73.

Remember the headers:

Foreign Domestic Foreign net inflows (AR) Foreign net outflows (AP)

Then remember below them

Row 1: “DOWN UP DOWN UP”

Then

Row 2: “UP DOWN UP DOWN”

If you remember this, you can draw it on your scratch paper when you begin your exam.

So for the sample question you gave, what is the effect when a foreign competitor's currency becomes weaker compared to the U.S. dollar, that would be an example of the Row 1 “DOWN UP DOWN UP” part, since foreign currency is weakening and domestic currency is strengthening. So once you know which row to use, you can determine what the effect would be. If net foreign currency inflows (AR), it will be a loss. If net foreign currency outflows (AP), it will be a gain.

If you're not using Becker, I can explain in a little greater detail.

Disclaimer: If any of this is wrong please don't hold me responsible!

AUD 96 FAR 95 REG 94 BEC 88

[Anonymous]

thanks for the help whitesox, I think I finally grasp an understanding of the changes in rates. It got me frustrated though!

[Author]

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