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# Chapter_4__Mini_Sim_Going_Global

## Decision Point: Ordering Light Bulbs

You have hired an international agent and are ramping up production in your U.S. facility to keep up with the orders the agent has obtained. You receive an email from your purchasing manager. From: M. Gomez

Subject: Order

We need to place a large order for bulbs for our solar kits. As you know, we import these bulbs from Japan. I have been watching the exchange rate between the U.S. dollar and the Japanese yen very carefully. The current exchange rate is \$1 to 106.94 yen. However, sources tell me that the exchange rate is expected to be \$1 to 115 yen very soon. Do you want me to place the order now or wait until the exchange rate changes?

Select an option from the choices below and click Submit.

Place the order now. Wait and place the order whenthe exchange ratechanges.

## Decision Point: The Exchange Rate and Your Company

Now that you're exporting solar kits into the Indian market, you've been watching the dollar's exchange rate against the Indian rupee. Currently, \$1 is worth 47 rupees.

What do you hope the exchange rate is tomorrow?

Select an option from the choices below and click Submit.

You hope that \$1 will be worth more than 47 rupees tomorrow.

You hope that the exchange rate will stay the same.

You hope that \$1 will be worth less than 47 rupees tomorrow.

## Mentoring Moment: Exchange Rates

Strong dollar? Weak dollar? Which is good? Which is bad?

The exchange rate is the rate at which the currency of one country can be exchanged for that of another.

A strong dollar can purchase more foreign currency. For example, if the dollar strengthened against the Indian rupee, you would be able to buy more rupees. If the exchange rate yesterday was 66.90 rupees for \$1, and today it is 68.90 rupees for \$1, you can buy more rupees for that same dollar.

A weak dollar can purchase less foreign currency. For example, if the dollar weakened against the Indian rupee, you would be able to buy less rupees. If the exchange rate yesterday was 66.90 rupees for \$1, and today it is 63.40 rupees for \$1, you can buy fewer rupees for that same dollar.

But before you start thinking that strong dollar = good and weak dollar = bad, let's look at the effect on exports and imports.

A strong dollar means U.S. consumers pay less for imports. Let's say that a pair of shoes from India costs 3,300 rupees. If the exchange rate was 66.90 rupees for \$1, you'd pay about \$49.33. However, if it were 68.90 rupees for \$1, those same shoes would cost only \$47.89. That may not seem like a lot of savings, but if you're a large retailer and you're buying thousands of pairs, that can add up in a hurry.

What if you're exporting goods to India? A strong dollar means Indian consumers will pay more -- and that may not be good news for you. Let's say that you're exporting California wine to India. Yesterday, a bottle of Merlot cost \$48.99, or 3,277 rupees. Today, when the dollar strengthened, that same bottle costs 3,375 rupees. Once again, if you're buying only one bottle that's probably not a huge deal, but if you're a commercial importer of thousands of bottles, that "strong dollar" may sting a bit.

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