International Economics 13th Edition by Robert Carbaugh

Exercise 9

Suppose ABC Inc., a U.S. auto manufacturer, obtains some of its auto components in Mexico and that the costs of these components are denominated in pesos; the costs of the remaining components are denominated in dollars. Assume the dollar's exchange value appreciates by 50 percent against the peso. Compared to your answer in study question 8, what impact will the dollar appreciation have on the firm's international competitiveness? What about a dollar depreciation?