Question

How can currency issues provide firms with the real option of altering inputs?

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1. Firms can buy currencies with lower values and use those currencies to buy necessary inputs for production
2. Firms with multiple locations can transfer inputs from one location to another
3. Firms can establish production facilities in several countries and shift production to countries with weak currencies to reduce production costs
4. Firms can speculate in currencies with an attempt to offset production losses

Answer 1

Currency issues will be providing for more with the real option of altering inputs by giving the firm an option to established production facilities in several countries and shifting the production to those countries which will be having a weak currency and those countries will be helpful in order to reduce the overall production cost associated with the business and it will also help in maximization of the profit.

Currency issues will be not giving the options of transferring inputs for speculation in currencies along with buying currencies with lower value because these are currency trading.

The correct answer would be option (C)firm can establish production facilities in several countries and shift production to countries with weak currencies to reduce production cost