Case Study on Economics 2022

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

ECONOMICS1
Table of Contents
Effect of exchange rate on firm.......................................................................................................2
References........................................................................................................................................6

ECONOMICS2
Effect of exchange rate on firm
Firms having exchange relation with rest of the nation in world are exposed to risk of
change in currency exchange rate. The same appreciation or depreciation of currency has a
different effect on companies that import raw material from other nations compared to
companies that export goods to global market. Depreciation of a currency indicates a fall in value
of home currency relative to foreign currency. An appreciation in contrast implies increase in
value of domestic currency relative to foreign currency. In case the firm is selling goods to the
global market, depreciation of currency results in an increase in demand for its product by
making it cheaper in the world market (Heijdra, 2017). This enhances sales and profitability.
However, if the firm depends on imported raw material then depreciation increases cost of
production by raising cost of imported inputs. Opposite occurs when currency appreciates.
Appreciation of currency reduces export demand by making the good expensive in the world
market. This reduces sales and profitability. However, if the firm is dependent on imported
inputs then appreciation of currency reduces production cost and help the company to expand its
production (Gandolfo, 2016).
Oil refining companies constitute an important part of petroleum industry. Port Arthur
Refinery. The approximate production volume of the company is 607, 000 barrels/day. In case of
oil refining companies, the cost of crude oil is the most vital component of total production cost.
The oil refining companies purchase crude oil from the producer and then convert it into
different petroleum products. Port Arthur Refinery engages in processing a considerably wide
range of crude oil inputs such as tight oil, sour, heavy and acid crudes. Majority of the crude oil
that the company processes come from Saudi Arabia (motiva.com, 2020). The company though
has diversified its source of imported crude to other nations having sufficient reserve of crude oil