In Japan, Honda’s export price per vehicle was 5 million yen when the exchange rate was 125 yen per US dollar ($). The expected inflation rate in the Japanese yen for next year is 1%. The standard inflation rate in the US is 3%. Honda is actively trying to limit the passing exchange rate changes in prices to 60% of annual changes (i.e., if, for example, the US dollar depreciates by 10% against the yen, Honda will consider depreciation of the US dollar by only 6% (=0.60*10%) to calculate the new prices of its vehicles in US dollars). What was the price in $ of a Honda at the beginning of the year? Considering purchasing power parity, what would be the expected exchange rate between the yen and the US dollar at the end of the year Assuming Honda wants to pass 60% of exchange rate changes to the vehicle price, what would be the price of a Honda vehicle at the end of next year in US dollars ($)?
In Japan, Honda’s export price per vehicle was 5 million yen when the exchange rate was 125 yen per US dollar ($). The expected inflation rate in the Japanese yen for next year is 1%. The standard inflation rate in the US is 3%. Honda is actively trying to limit the passing exchange rate changes in prices to 60% of annual changes (i.e., if, for example, the US dollar depreciates by 10% against the yen, Honda will consider
What was the price in $ of a Honda at the beginning of the year?
Considering
Assuming Honda wants to pass 60% of exchange rate changes to the vehicle price, what would be the price of a Honda vehicle at the end of next year in US dollars ($)?
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