Question

A nation’s inflation rate is 100 percent. Managers can expect: (a) Export prices to foreign markets...

A nation’s inflation rate is 100 percent. Managers can expect:
(a) Export prices to foreign markets to double
(b) Import prices to twice as high
(c) A government move to halve the number of national currency units per dollar or Euro
(d) A government move to double the number of national currency units per dollar or Euro
(e) Just (a) and (d)

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Answer #1

As nation's inflation is high, more money is needed to buy local goods. People tend to buy imported good. Demand for imported goods will be increased. So import goods become costliest after 100% inflation. Import should be done using forex(dollar or euro). Demand for forex will be increased which will lead to depreciate the exchange rate. For an example previous $1=35 rupees after 100% inflation $1=60 rupees. The government move to increase the number of national currency units per dollar or euro but not necessarily double the number.

Therefore the option b is correct.

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