Final answer:
Exchange rate fluctuations can significantly impact BMW's profitability when exporting cars from Germany to the U.S., as changes in the euro to dollar exchange rate can make BMW cars more or less expensive in the U.S., thereby affecting demand and revenue conversions back to euros.
Step-by-step explanation:
When BMW produces its cars in Germany and sells them in the US, the exchange rate plays a crucial role in determining profitability. For instance, if initially the price of a BMW car in Germany is EURO 36,000 and in the US it is $36,000, with a 1:1 exchange rate, the pricing is relatively stable. However, if the value of the euro rises against the dollar, BMW would receive more euros for each car sold in the US, potentially increasing its earnings when converted back to euros.
Conversely, a stronger dollar against the euro makes BMW cars more expensive in the US when the price is set in euros. This might decrease demand, as the US consumers would find the cars less affordable. This fluctuation in exchange rates can affect the competitive pricing of BMW cars in the international market, as well as the company's overall revenues and profitability when converting sales back into its home currency.