Question

Ranbaxy (India) in Brazil. Ranbaxy, an India-based pharmaceutical firm, has continuing problems with its cholesterol reduction product's price in one of its rapidly growing markets, Brazil. All product is produced in India, with costs and pricing initially stated in Indian rupees (Rps), but converted to Brazilian reais (R$) for distribution and sale in Brazil. In 2009, the unit volume was priced at Rps22,500, with a Brazilian real price set at R$895. But in 2010, the real appreciated in value versus the rupee, averaging Rps26.53/ R$. In order to preserve the real price and product profit margin in rupees, what should the new rupee price be set at?

Answer 1

To keep the price and profit margin consistent in Brazil for Ranbaxy's product after the appreciation of the Brazilian real, the new price in Indian rupees should be approximately Rps23,734.35.

Step-by-step explanation:

The question at hand involves the determination of a new price for Ranbaxy's cholesterol-reducing product in Indian rupees (Rps) after the appreciation of the Brazilian real (R$) against the rupee.

In 2010, the new exchange rate is Rps26.53/R$. To maintain the real price of R$895 in Brazil, we need to find the new rupee price that preserves the product's profit margin.

To calculate this, we multiply the real price by the new exchange rate: R$895 * Rps26.53/R$ = Rps23,734.35.

Therefore, to preserve the real price and profit margin in rupees, Ranbaxy should set the new price of the product at approximately Rps23,734.35.

This calculation takes into account that Brazil's central bank might set a lower exchange rate to stimulate exports and aggregate demand, aiming for a stable economic environment.