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International Finance

19. The shipbuilding industry is facing a worldwide capacity surplus. Although Japan currently controls about 50% of the world market, it is facing severe competition from the South Koreans. Japanese shipyards are extraordinarily productive, but at current price levels were just about breaking even with an exchange rate of ¥240 = $1. What are the likely effects on Japanese shipbuilders of a yen appreciation to ¥180 = $1? The South Korean won has maintained its dollar value.

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ANSWER. The statement that "Japanese shipyards are extraordinarily productive" tells you that there is not much room for cost cutting by Japanese shipyards. Hence, Japanese shipyards will be devastated by a rise in the yen, as they were. As the yen appreciates against the won, South Korean shipyards gained a substantial cost advantage vis a ...

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