Assume that Ford Motor Company obtains some of its inputs in Mexico (foreign sourcing).As the peso becomes a larger portion of Ford's total costs, a dollar appreciation leads to a _______ in the peso cost of a Ford vehicle and a _______ in the dollar cost of a Ford compared to the cost changes that occur when all input costs are dollar denominated.
A) smaller increase, larger decrease
B) smaller increase, smaller decrease
C) larger increase, smaller decrease
D) larger increase, larger decrease

Question

Quizplus · Accepted Answer

When the dollar appreciates, the cost of peso-denominated inputs decreases in dollar terms, leading to a smaller increase in the peso cost of a Ford vehicle and a larger decrease in the dollar cost compared to when all costs are dollar-denominated.

Assume That Ford Motor Company Obtains Some of Its Inputs