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Note that the French firm earns its revenue in USD. Euro appreciation ==> USD depreciation ==> higher USD inflation


Using the expression

P/E = 1 / (real rate + (1 - w) i)

and given that the firm is not able to pass 100% inflation to its customer, the denominator increases with inflation resulting in lower P/E.



Edited 2 time(s). Last edit at Tuesday, May 4, 2010 at 04:25AM by CFASniper.

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