A U.S. automobile dealer has ordered a fleet of Japanese cars worth 10 million yen. The terms of payment is C.O.D. (cash on delivery). At the time the order was placed, the exchange rate was 100 yen per U.S. dollar. When the fleet arrived the exchange rate had become 200 yen per U.S. dollar.
A) This change in the foreign exchange rate will hurt the U.S. importer.
B) This change in the foreign exchange rate will hurt the Japanese exporter.
C) This change in the foreign exchange rate will benefit the U.S. importer.
D) This change in the foreign exchange rate will benefit the Japanese exporter.

Question

Quizplus · Accepted Answer

The U.S. importer benefits because they now need fewer dollars to pay for the cars. At 200 yen per dollar, 10 million yen converts to 50,000 dollars, compared to 100,000 dollars at the original rate of 100 yen per dollar.

A US Automobile Dealer Has Ordered a Fleet of Japanese Cars