Question

Assume that Samsung of South Korea imports dollar-denominated cellphone glass from U.S. suppliers while all other inputs are obtained from South Korean suppliers whose costs are denominated in won. Also assume that the company has the cost structure shown in the table below to manufacture cell phones. If the won appreciates from ₩1,200/$ to ₩1,000/$ what is the won cost of a Samsung phone?

Hypothetical Costs of Producing a Cell Phone for Samsung of South Korea
Cost Component		Won Cost		Dollar Equivalent Cost
Labor		120,000
Glass		60,000
Other materials		90,000
Other costs		30,000
Total costs		300,000

		₩210,000
		₩270,000
		₩300,000
		₩290,000
		₩250,000

The risk to all foreign investors and lenders arising from political decisions in a country is known as

		Currency risk
		Country risk
		Credit risk
		Market risk
		Health risk

Answer 1

The earlier total (before appreciation) was

120000+60000+90000+30000=300000.

Note that the glass cost was 60000. At that time, Won was 1200/$, that means dollar cost for glass was 60000/1200=50 dollars. All other components are in Won only, so appreciation doesnt matter. Post appreciation, the Won cost of glass would be 50*1000=50000. So, new total cost

120000+50000+90000+30000=290000, option D.

Country risk- This type of risk is associated with the decisions and situation in the country where money is being invested.

answered by: anonymous