GXC Corp is a U.S. manufacturer of scientific instruments. GXCs sales are entirely in the Eurozone. GXCs selling price per instrument is currently 100. GXC expects a sales volume of 2,000 instruments. GXC sources components from the Eurozone. The cost of the components is fixed in euros. For each instrument, the components cost is 20. Other variable production costs, incurred in the assembly of the instrument in the U.S., are $25 per instrument. The fixed operating costs are $50,000. Assume todays spot FX rate is 1.25$/ and the euro were to depreciation by 10%. (1) Find GXCs optimal FX pass-through policy, assuming that sales volume changes when price changes, and GXC has no competitor.

(2) Assume the price elasticity of demand for GXCs product is 1.5. Find the operating exposure based on the optimal pass through rate in question (1).