Rococo, Inc. France (A). Rococo, Inc. of France exports leather couches to Turkey, whose currency, the lira (TRY), has been trading at TRY2.97/€. Exports to Turkey are currently 40,000 couches per year at the lira equivalent of €1,200 each. A strong rumor exists that the lira will be devalued to TRY3.2/€ within two weeks by the Turkish government. Should the devaluation take place, the lira is expected to remain unchanged for another decade.

Accepting this forecast as given, Rococo faces a pricing decision that must be made before any actual devaluation: Rococo may either (1) maintain the same lira price and in effect sell for fewer euros, in which case Turkish volume will not change, or (2) maintain the same euro price, raise the lira price in Turkey to compensate for the devaluation, and experience a 20% drop in volume. Direct costs in France are 50%
of the French sales price. What would be the short-run (one-year) implication of each pricing strategy? Which do you recommend?