Question

X Car Company produces a car that sells in Japan for ¥1.8 million. On September 1, the beginning of the model year, the exchange rate is ¥150:$1. Consequently, X sets the U.S. sticker price at $22,000.

Would X be helped or hurt by dollar depreciation? Suppose by October 1, the exchange rate has dropped to ¥135:$1. How much Yen will Ayota receive per sale?

X attempted to raise prices in the U.S. market to improve its situation. What are the pros and cons of this strategy?

Suggest two production strategies for X to improve its situation?

Suggest three marketing strategies that X can improve its situation. Be specific.

It takes time for production and cost-saving strategies to take effect. In the short run, what financial managers can do in the short run to improve X's situation? Why?

Answer 1

1, Depreciation of USD will hurt the X as the price of the car in Yen will increase and lead to lesser margin.

2. Car will fetch $13,333.33

3. Increase in price will have following effect-

Pros-

a. Margin shall be maintained to cover increased cost

b. May attract new buyers who are price conscious

Cons-

a. Less sale as competitiveness will decrease

b. May not be able to sustain increased prices for long

4. 2 production strategies are as-

a. Move production unit to US

b. Minimise import burden on production

5. 3 marketting strategies are as-

a. Build beneficial relationships with complementary product businesses

b. Create a niche market

c. Increase social media advertising and select target group consciusly

6. In short run, the X company could explore hedge of foreign risk by entering int forward contract based on historical information to minimise the currency risk.