Suppose a car in the Mercedes Benz range costs 28,000 to produce and is currently selling for
Question:
Suppose a car in the Mercedes Benz range costs €28,000 to produce and is currently selling for €40,000 in Germany, when the exchange rate is €1.00 = $1.25.
If the car is on sale for $50,000 in the USA, and if you know that the pass-through rate for this product is 75%, what would you expect to happen to the model’s US price after a fall in the value of the dollar to €1.00 = $1.40?
(a) Other things being equal, what will have happened to the profit margin on sales in USA (in € and %) after the change in the exchange rate?
(b) How would you expect the manufacturer to respond to the new situation?
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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a Value of Euro goes up from 125 to 14 ie change of 1200 with passthrough o...View the full answer
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Related Book For 
Exchange Rates and International Finance
ISBN: 978-0273786047
6th edition
Authors: Laurence Copeland
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