Question

Duncan Industries, a U.S. based firm, produces manufactured goods in Morocco to sell in the United States. On January 1, 2019, the exchange rate is USD 0.1350 = 1 MAD (Moroccan Dirham). On January 1, 2020, the exchange rate is USD 0.1230 = 1 MAD. During 2019, the U.S. experienced 2.5% inflation and Mexico experienced 12.5% inflation. Duncan does compete against some firms that produce competing goods in the U.S. Has Duncan’s competitive position improved, declined, or is it unchanged? Assume that wages and other operating expenses change commiserate with inflation in the relevant economy. Please provide the relevant calculations to some to your conclusion.

Answer 1