Reference no: EM133129147

Question - Hurte-Paroxysm Products, Inc. (A). Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to Brazil, whose currency, the real (R$) has been trading at R$3.60/US$. Exports to Brazil are currently 70,000 printers per year at the real equivalent of $21 0 each. A strong rumor exists that the real will be devalued to R$4.20l$ within two weeks by the Brazilian government. Should the devaluation take place, the real is expected to remain unchanged for another decade. Accepting this forecast as given, HP faces a pricing decision that must be made before any actual devaluation: HP may either (1) maintain the same real price and in effect sell for fewer dollars, in which case Brazilian volume will not change, or (2) maintain the same dollar price, raise the real price in Brazil to compensate for the devaluation, and experience a 20% drop in volume. Direct costs in the United States are 60% of the U.S. sales price.

a. What would be the short-run (one-year) impact of each pricing strategy?

b. Which do you recommend?