Reference no: EM132279048
Reuters reported on January 24, 2004: "The United States is sucking in imports from all over the world, driving up the U.S. current account deficit as Americans borrow heavily. This, combined with the huge U.S. budget deficit, is forcing down the value of the U.S. dollar in currency markets. The euro is bearing the brunt of the dollar's fall, rising 20 percent last year." (Stella Dawson, "Global Business Leaders Fret About Growth," Reuters, Saturday, January 24, 2004). It appears that a value change of 20% or more within one year has been a frequent occurrence in the foreign exchange market. If the euro appreciates 20% against the dollar, which of the following is TRUE for a Eurozone exporter to the U.S.?
a. If the exporter adopts a pricing to market strategy, its euro profits will go up.
b. If the exporter adopts a complete pass-through strategy, its sales in the U.S. will go up.
c. If the price elasticity of demand for its product in the U.S. is 3, and the exporter keeps its euro price unchanged, its sales volume in the U.S. will decrease by 60%.
d. If the price elasticity of demand for its product in the U.S. is 3, and the exporter follow complete exchange rate pass-through, its sales volume will increase by 60%.
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