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Boddington mines in Western Australia exports coal to several Chinese power plants. Sales are currently 1,000,000 mega tonnes per year at the yuan equivalent of
Boddington mines in Western Australia exports coal to several Chinese power plants. Sales are currently 1,000,000 mega tonnes per year at the yuan equivalent of A$24,000 per mega tonne. The Chinese yuan has been trading at Yuan6.20/A\$, but a Hong Kong advisory service predicts the yuan will drop in value next week to Yuan7.20/A\$, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Boddington mines faces a pricing decision in the face of the impending devaluation. It may either (1) maintain the same yuan price and in effect sell for fewer Australian dollars, in which case Chinese volume will not change; or (2) maintain the same Australian dollar price, raise the yuan price in China to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the Australian sales price. a) What would be the short-term (one year) impact of each pricing strategy? b) Which strategy do you recommend
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