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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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