TZ Printers, Inc. (TZ) of the United States exports computer printers to Costa Rica, whose currency, the colon (symbol C$) has been trading at C$500/US$. Exports to Costa Rica are currently 50,000 printers per year at the colon equivalent of $200 each. A strong rumor exists that the colon will be revalued to C$550.00/$ within two weeks. Should the revaluation take place, the colon is expected to remain unchanged for another decade.

Accepting this forecast as given, TZ faces a pricing decision which must be made before any actual revaluation: TZ may either (1) maintain the same colon price or (2) maintain the same dollar price.

a. If they maintain the same colon price and volume and local costs all remain the same what will happen to cash flows in US$? Why

b. If they maintain the same US$ price and local competition maintains the same colon price what should happen to sales volume? Why?