Exchange Rate Changes - the Relative Profitability Approach

Suppose the MG Mini (built in the UK) sells on the French market at a price of 15,000

Initially the euro is worth 95 pence (so 1 = 1.05 approximately).

Work out the sterling revenue derived from each car sold in France.

Is it:-

a) 27,118

b) 14,250

c) 15,750

Now the exchange rate changes. The pound appreciates so now you only have to pay 85 pence to buy one euro.

Assuming that the manufacturer does not change the euro price of its car sold in France, calculate the new sterling revenue from each car sold in France

Is it:-

a) 12,750

b) 14,750

c) 17,647

Therefore which of the following statements is correct?

Exporting becomes more profitable

Exporting becomes less profitable