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International Economics 17th Edition

International Economics (17th Edition)

Book Edition17th Edition
Author(s)Carbaugh
ISBN9781337558938
PublisherCengage
SubjectEconomics
Reading Foreign Exchange Quotations
International Trade Application
The Forward Market
International Trade Application
Chapter 11, Reading Foreign Exchange Quotations, International Trade Application, Exercise 01
Page 385

What do you think? What would happen to Toyota's profits if the exchange value of the yen appreciated? Why?

Here is a tip:

A currency is said to be appreciated when its value against some foreign currency increases.

Explanation

When the value of the yen appreciates, it becomes more expensive for people in Country J to buy Company T automobiles. So consumers of Country J would increase imports and decrease their demand for domestic automobiles. As a result, the quantity demanded of Company T automobiles would decline. And it would lead to a decline in the profits made by Company T. 

Therefore, there would be a fall in Company T's profits due to appreciation of the yen. 

Verified Answer

If the exchange value of the yen appreciated, the automobiles produced by Company T would become more expensive than other automobiles. So consumers of Country J would raise imports and reduce their demand of Company T automobiles. This would lead to a fall in the quantity demanded for automobiles, thereby negatively affecting the profits of Company T. As a result, Company T profits would decline.

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