Cash inflows from exports denominated in the local currency will also likely be reduced as a result of appreciation in that currency because foreign importers will need more of their own currency to pay for these products. Any interest or dividends received from foreign investments will also convert to a reduced amount if the local currency has strengthened.With regard to the firm's cash outflows, the cost of imported supplies denominated in the local currency will not be directly affected by changes in exchange rates. If the local currency appreciates, however, the cost of imported supplies denominated in the foreign currency will be reduced. In addition, any interest to be paid on financing in foreign currencies will be reduced (in terms of the local currency) if the local currency appreciates because the strengthened local currency will be exchanged for the foreign currency to make the interest payments.
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