If investors recognize the impact of inflation and exchange rate changes on a firm’s cash flows, changes in exchange rates should be reflected in stock prices. How would the stock price of each of the following Swiss companies be affected by an unanticipated appreciation of the Swiss franc of 10%? Assume that only 2% of the appreciation can be attributed to increased inflation in the rest of the world (relative to the Swiss inflation rate).

a. A Swiss airline: More than two-thirds of its employees are Swiss. Most revenues come from international fares set in U.S. dollars.

b. Nestlé: Fewer than 5% of its employees are Swiss. Most revenues are derived from sales of consumer goods in a wide range of countries with competition from local producers.

c. UBS: Forty percent of the employees work in Switzerland. The bank’s Group Treasury periodically hedges any non-Swiss franc monetary positions.