Profitability of the japanese firm

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Consider a Japanese firm headquartered in Japan, which reports in profits in Yen, that produces all its garments in China. It imports 70% of its raw materials from Japan and uses labour and some other inputs in China - adding the remaining 30% of its value - to produce the garments. Assume that input quantities are used in fixed proportions.

Suppose it exports all finished garments to the USA, and the US$/Yen rate does not change but the Rmb depreciated by 10% against both US$ and Yen. Will the profitability of the Japanese firm go up, down, or remain the same? Explain how you arrive at your answer.

Reference no: EM132162806

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