Question

Assume that a Japanese car manufacturer exports cars to U.S. dealerships, which are priced in yen. The demand for those cars declines when the yen is strong. The manufacturer also produces some cars in the U.S. with U.S. materials and those cars are priced in dollars. The manufacturer could reduce its economic exposure by:

a. pricing its exports in dollars.
b. relying completely on Japanese suppliers for its parts.
c. producing more automobiles in the United States.
d. closing down most of its plants in the United States.

Answer 1

C) producing more automobiles in the United States.

Step-by-step explanation:

All companies that engage in foreign trade suffer from currency exchange risks, because they cannot control the price of foreign currencies. An American company cannot control the price of the US dollar, how can it expect to control the price of the Japanese yen.

The solution will always be to increase manufacturing in the country, Honda realized that about 40 years ago when they started producing the Accord and then Toyota followed. This doesn't eliminate all the risks, since many parts are still imported from other countries, but at least they are reduced.

Once Honda's market share reached a certain amount of cars, they decided to built them in the US. Back then Japanese economy was booming, but their currency was also appreciating fast. The same happened to BMW and Mercedes Benz a few years later when the euro started appreciating.

Answer 2

c. producing more automobiles in the United States.

Step-by-step explanation:

Based on the scenario being described it can be said that the manufacturer could reduce its economic exposure by producing more automobiles in the United States. By doing so they would not be at the mercy of the yen's unexpected currency rate fluctuations since the cars produced in the US are priced in dollars which is for the most part very stable.