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Your U.S. firm is about to sign a contract to supply services to a bank in Beijing, with an up-front payment agreement of 50 percent.
Do you want this payment in U.S. dollars?
Why or why not?
Expert Solution
If a U.S. company negotiates a deal with an international company, it would usually be ideal to take payment in U.S. dollars. The dollar has accepted value worldwide and is a far more stable currency compared to the Chinese Yuan. Taking foreign currency introduces the exchange rate risk. There becomes a possibility that the value of the Yuan drops, effectively reducing the true value of the payment to the U.S. company. If we had reason to believe the Yuan would rise relative to the dollar, then it might be a winning gamble to take payment in that form.
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