What a Weak Dollar Means

You'd think that a weak dollar would be bad for American companies -- but that's not always the case. A weak dollar can help firms with extensive international operations, such as Procter & Gamble (NYSE: PG  ) or McDonald's (NYSE: MCD  ) .

These firms receive a big chunk of their revenues in the form of rubles, pesos, and francs. Then, when the time comes to exchange those currencies for U.S. dollars, they'll get more dollars for the foreign currencies -- and more dollars means higher earnings. (A weak dollar means that the foreign currencies are stronger, and worth more, relatively speaking.) Warehouse retail giant Costco (Nasdaq: COST  ) recently reported strong profits, due in part to our weak dollar. Heinz (NYSE: HNZ  ) reported the same thing.

Meanwhile, a strong dollar can cause trouble for companies with extensive international operations. Major international enterprises typically take steps to protect themselves to some degree from currency exchange risks.

For more on how the bouncing dollar affects your bottom line, read Don't Shortchange the Dollar, Gold: The Anti-Dollar, and Weak-Dollar Medicine.

Longtime Fool contributor Selena Maranjian owns shares of Costco.


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