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You can directly type your answers in the Message box or attach a Word document/a picture to show your calculations. You must answer all four questions. Your score is based on your explanations. To succeed in international business, you should know the effects of exchange rate changes on costs and prices. The costs of producing an automobile for Toyota are listed in Table 1. Table 1: Costs of Producing an Automobile for Toyota Inc. of Japan Cost Component Yen Cost Dollar-Equivalent Cost (Yl) = 1,200,000 (DI) Labor Materials Steel Other materials Total material costs Other costs Total costs (Y2) = 800,000 (Y3) = 1,600,000 (Y4) = 2,400,000 (Y5) = 400,000 (Y6) = 4,000,000 (D2) (D3) (D4) (DS) (D6) Note: Y1 to Y6 are yen-denominated values and D1 to D6 are dollar-denominated values. 1. Assume that Toyota obtains all inputs from Japanese suppliers and that the yen/dollar exchange rate is 200 yen per dollar. Calculate the dollar-denominated costs (values D1 to D6) of a Toyota automobile. Show your calculations and explain. 2. Assume that Toyota obtains all inputs from Japanese suppliers and that the yen/dollar exchange rate changes from 200 yen = $1 to 100 yen = $1. Calculate the dollar-denominated costs (values D1 to D6) of a Toyota automobile. Show your calculations and explain. 3. (Based on your answers to Part 1 and Part 2) What is the percentage change in the dollar-denominated total costs due to the yen appreciation (i.e., the percentage change in value D6)? Show your calculations and explain. 4. Assume that Toyota imports steel from U.S. suppliers, whose costs are denominated in dollars, while all other inputs are obtained from Japanese suppliers whose costs are denominated in yen. Assume that the yen's exchange value appreciates from 200 yen = $1 to 100 yen = $1. Calculate the yen-denominated costs (values Y1 to Y6) of a Toyota automobile after the nominal exchange rate changes. Show your calculations and explain. 5. (Based on your answers to Part 4) What is the percentage change in the yen-denominated total costs due to the yen appreciation (i.e., the percentage change in value Y6)? Show your calculations and explain 6. Assume that Toyota imports steel from U.S. suppliers, whose costs are denominated in dollars, while all other inputs are obtained from Japanese suppliers whose costs are denominated in yen. Assume that the yen's exchange value appreciates from 200 yen = $1 to 100 yen = $1. Calculate the dollar-denominated costs (values D1 to D6) of a Toyota automobile after the nominal exchange rate changes. Show your calculations and explain. 7. (Based on your answers to Part 6) What is the percentage change in the dollar-denominated total costs due to the yen appreciation (i.e., the percentage change in value D6)? Show your calculations and explain 8. How do you think Toyota can offset the impact of yen appreciation on its international competitiveness? Explain
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