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Discuss the effects that a drop in value of the U.S. dollar in relation to other currencies on the foreign exchange markets has on:

(1) The sales of a U.S. business firm that exports part of its output to foreign countries.

(2) The costs of a U.S. business firm that imports from foreign countries part of the inputs used in the manufacture of its products.

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As U.S. dollar drops against other foreign currencies, the sales of a U.S. business firm that exports part of its output to foreign countries will increase. This is because the U.S. products are cheaper compared to those of the foreign countries. However, in terms of certain style that consumers in the foreign countries may prefer, there won't be that much change in the increase of the U.S. ...

Solution Summary

This solution explains the effects that a drop in value of the U.S. dollar in relation to other currencies on the foreign exchange markets has on:

(1) The sales of a U.S. business firm that exports part of its output to foreign countries.

(2) The costs of a U.S. business firm that imports from foreign countries part of the inputs used in the manufacture of its products.

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