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International Economics 17th Edition

International Economics (17th Edition)

Book Edition17th Edition
Author(s)Carbaugh
ISBN9781337558938
PublisherCengage
SubjectEconomics
Cost-Cutting Strategies of Manufacturers in Response to Currency Appreciation
International Trade Application
Exchange Rate Pass-Through
International Trade Application
Chapter 13, Cost-Cutting Strategies of Manufacturers in Response to Currency Appreciation, International Trade Application, Exercise 01
Page 444

What do you think? How can moving production to the United States help Japanese producers avoid the problem of an appreciation of the yen?

Here is a tip:

Exchange rate is the rate at which domestic currency is exchanged for foreign currency.

Verified Answer

When the yen appreciates, the input costs of goods produced by Country J rises in terms of dollars and other foregin currencies. The rising yen, thus, negatively affects the competitiveness of Country J exports. 

 

When the production of Country J goods is moved to Country U, all the inputs will be paid for in dollars not yen. This will reduce the number of times the yen needs to be converted to dollars. This allows producers of Country J avoid the effect of the rising yen on the value of their inputs, thus preventing the price to increase in terms of dollars and allowing their goods to retain competitiveness.

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