An exchange-rate change for an importer
A fictional shop imports notebooks priced atUS$4each. Initially one US dollar costs100yen; later it costs125yen. The supplier keeps the dollar price unchanged. For this exercise ignore shipping, taxes, banking fees and any changes in demand. The shop plans to buy100notebooks and has not yet decided its retail price. A student argues that a larger yen-per-dollar number means the yen has become stronger. Another claims the retail price must increase by exactly the same percentage as import cost. Calculate the two purchase costs, explain the currency movement, and distinguish the supplied cost calculation from an unsupported prediction about the shop's future pricing decision.
1. Calculate the total yen purchase cost before and after.
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Initially the cost is4×100×100=40,000yen. Later it is4×125×100=50,000yen, an increase of10,000yen or25%.
2. What can be concluded about the currency and retail price?
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The yen depreciated against the dollar because more yen buy one dollar. Import cost rises under the stated assumptions, but the shop's retail-price response is not given.