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International Finance

7. In 1994, the Singapore dollar rose by 9% in real terms against the U.S. dollar. What was the likely impact of the strong Singapore dollar on U.S. electronics manufacturers using Singapore as an export platform? Consider the following facts. On average, materials and components--85% of which are purchased abroad-account for about 60% of product costs. Labor accounts for an additional 15%; other operating costs account for the remaining 25%.

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ANSWER. The impact was less than might be expected. With 85% of materials and components coming from abroad, the net effect of the 9% rise in the real value of the Singapore dollar on this component of cost is likely to be only about 1.35% (0.15 x 0.09). Since these costs account for about ...

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