Question

1) IF THE DOLLAR APPRECIATES, WHAT WOULD YOU EXPECT TO HAPPEN TO OUTSOURCING BY AMERICAN COMPANIES?

EXPLAIN AND PROVIDE AN EXAMPLE?

Answer 1

The outsourcing will increase. The reason is that outsourcing will become less costly. Suppose Microsoft needs to pay 1000 Rupees to Indian firm to carry out customer care services. We assume that 1 dollar=100 rupees. Suppose Microsofts own call center costs 10dollars.indian outsourcing costs will be 1000/100=10 dollars. So Microsoft is indifferent between both options equally. Now suppose dollars appreciates and exchange rate is 1dollar =200 rupees. Now outsourcing will cost 1000/200=5 dollars only. So outsourcing costs less and Microsoft will prefer outsourcing to india