Question

2. Suppose you are a producer of asphalt located in China. Petroleum is one of the major inputs for asphalt. Your company must import petroleum which is sold in a world market and priced in U.S. dollars. How are the profits of your company affected when the yuan appreciates against the dollar

Answer 1

Answer: There'll be an increase in profit.

Explanation:

Appreciation of a currency is when the value of a currency increases. Based on the information given in the question, since the company imports petroleum which is sold in a world market and priced in U.S. dollars, when the Yuan appreciates against the dollar, this will bring about increase in profit to the company.

This is because when the Yuan appreciates against the dollar, the company will be spending a lessee amount to buy petroleum and since the cost of production has been reduced, it'll bring about an increase in profit.