Assignment 5 Practice Problems Example | Topics and Well Written Essays - 250 words

5 Practice Problems - Assignment Example Depending on the government it can be adverse or favourable. If the US dollar is strong against another currency, it leads to increased demand of imports as prices go down. This inturn weakens export as foreign goods appear to be expensive outside the country. Importers prefer strong local currency while exporters prefer weak local currency (Econedlink par 11) For an export business based in the US the ideal situation would be if the dollar weakens, this makes it attractive for foreigners to buy goods from US, but if it appreciates it, makes foreign goods seem expensive. To balance this fluctuation the company needs to cut the dollar price to match the prices in pounds (Econedlink par 11). 4. Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners, b. your competitive position is likely worsened. When the dollar appreciates, this makes foreign goods seem cheaper and this improves their position in the market, but when the dollar depreciates the price of foreign goods seem expensive and this may probably worsen the position of foreign business (Econedlink par 11). 5. Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is $1.25 = â‚ ¬1.00. One year later the exchange rate is the same, but the Italian government has expropriated your firms assets paying only â‚ ¬80,000 in compensation. This is an example of It does not matter the exchange rate, what counts is the fact that the government has taken over a private own business. The government does this without the owner’s consent but there must be compensation (Meridian Finance par 1). Upenn.edu Chapter 1 Globalization And The Multinational Firm Suggested Answers To End- Of-Chapter Questions. 2014,