These questions are from the Financial Management Theory and Practice 13th Ed Te

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These questions are from the Financial Management Theory and Practice 13th Ed Text Book - Chapter 17 - Multinational Financial Management

17-10
Early in September 1983, it took 245 Japanese yen to equal $1. More than 20 years later that exchange rate had fallen to 108 yen to $1. Assume the price of a Japanese-manufactured automobile was $8,000 in September 1983 and that its price changes were in direct relation to exchange rates.
a. Has the price, in dollars, of the automobile increased or decreased during the 20-year period because of changes in the exchange rate?
b. What would the dollar price of the car be, assuming the car’s price changes only with exchange rates?

Explanation / Answer

September 1983: Auto mobile cost = $8,000 In yen's (8000 * 245) = 1960000 yens 20 Years Later: If $ Value change: $ price is (1960000/108) = $18,148 =18148/8000 In 1983            $1 = $2.2685 in 1983 $1 Equals to $2.2685 lator 20 years If $ Value is Fixed: Auto mobile cost = $8,000 20 Years later yen's per $ = 108 Auto mobile cost = 8000 * 108 = 864000 Yens September 1983: Auto mobile cost = $8,000 In yen's (8000 * 245) = 1960000 yens 20 Years Later: If $ Value change: $ price is (1960000/108) = $18,148 =18148/8000 In 1983            $1 = $2.2685 in 1983 $1 Equals to $2.2685 lator 20 years If $ Value is Fixed: Auto mobile cost = $8,000 20 Years later yen's per $ = 108 Auto mobile cost = 8000 * 108 = 864000 Yens
Thank you.... September 1983: Auto mobile cost = $8,000 In yen's (8000 * 245) = 1960000 yens 20 Years Later: If $ Value change: $ price is (1960000/108) = $18,148 =18148/8000 In 1983            $1 = $2.2685 in 1983 $1 Equals to $2.2685 lator 20 years If $ Value is Fixed: Auto mobile cost = $8,000 20 Years later yen's per $ = 108 Auto mobile cost = 8000 * 108 = 864000 Yens

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