How does the weak dollar help earnings here?

[imaptone]

I don't understand how the weaking of the dollar helps eps of large American Multinationals. Anyone care to explain?

[T50_Omaha8]

Consider an extreme example. Let's say originally the euro and the dollar are equal. American multinationals sell things in Europe and trade the currency back 1-to-1.

Now let's say a euro is worth two dollars suddenly. When American mutlinationals sell the same thing for one euro in Europe, they tarde the euro for TWO dollars. Suddenly their earnings double.

Similarly, any assets Americans have in Europe double in dollar value, while any assets Europeans have in America halve in euro value.

Does that help?

Edit: half =/= verb form

[DcifrThs]

it also helps in terms of net exports (i.e. overall competativeness measures).

our trade balance (goods/services) has been improving lately as a result of the weak dollar. we buy fewer of the more expensive (due to currency moves) foreign items and export more of our (now cheaper due to currency moves) domestically produced goods.

the downside to a weak dollar is in import heavy industries where now costs are going to rise relative to net revenues(depending on the global distribution of net sales). this squeezes margins in firms that need things like oil and other commodities denomianted in dollars and also produce things in the US for export to other countries.

there are probably research reports out there that break up the S&P500 into industries by performance when the dollar moves.

if there isn't any research, that might be an interesting space to fill.

Barron