Question
Smith (U.S.) exports heavy equipment to several Japanese facilities. Sales are currently 8,000 units per year at the yen equivalent of $5,000 each. The Japanese
Smith (U.S.) exports heavy equipment to several Japanese facilities. Sales are currently 8,000 units per year at the yen equivalent of $5,000 each. The Japanese yen has been trading at yen 109/$. The expectation is that it will devalue to Yen 115/$ in the near future. The fallout of this change in the yen/USD is: (1) US company maintains the same yen price and in effect sell for fewer dollars, in which case Japanese volume will not change; or (2) maintain the same dollar price, raise the yen price in Japan to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the U.S. sales price. What do you recommend and why?
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