A Japanese firm builds a manufacturing plant in Canada to avoid transportation charges in bringing its goods to the Canadian market. The Japanese firm is apparently willing to bear the _________________ of changes in the relative economic conditions between Canada and Japan.

Question

Quizplus · Accepted Answer

The Japanese firm is willing to bear the long-run exchange rate risk, which refers to the potential for losses due to fluctuations in the exchange rate between the Japanese yen and the Canadian dollar over the long term. This risk is relevant because the firm's costs and revenues may be in different currencies, and changes in exchange rates can affect the profitability of their Canadian operations.

A Japanese Firm Builds a Manufacturing Plant in Canada to Avoid