Assume Isuzu produces a car in Japan for ¥1.8 million. On June 1, when new models are introduced, the exchange rate is ¥150/USD. Consequently, the automaker sets the sticker price for the car at USD 12,000. By August 1, the exchange rate has dropped to ¥125/USD. Isuzu is worried that it will receive fewer Yen per sale (USD 12,000 * ¥125/USD = ¥1.5 million).


Suppose the Bank of Japan intervenes in early October to push down the value of the Yen which subsequently moves to ¥225/USD. What problems and/or issues does it present for Japanese and American car companies?

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Effects on Japanese Car companies Changes in the exchange rate will put the Japa... View the full answer