Suppose the current exchange rate is 115 yen per dollar. We currently have a demand for 50 units of our product when the unit price is 800 yen. The cost of producing and shipping the product to Japan is $6, and the current elasticity of demand is –2.5. Find the optimal price to charge for the product (in yen) for each of the following exchange rates: 60 yen/$, 80 yen/$, 100 yen/$, 120 yen/$, 140 yen/$, and 160 yen/$. Assume the demand function is linear. Exchange Rate Price 60     80   100   120   140   160

Elan Pharmaceuticals. Elan Pharmaceuticals, a U.S.-based multinational pharmaceutical company, is evaluating an export sale of its cholesterol-reduction drug with a prospective Indonesian distributor. The purchase would be for 1,680 million Indonesian rupiah (Rp), which at the current spot exchange rate of Rp9,440/$, translates into $177,966.10. Although not a big sale by company standards, company policy dictates that sales must be settled for at least a minimum gross margin, in this case, a cash settlement of $171,000. The current 90-day forward rate is Rp9,940/$. Although this rate appeared unattractive, Elan had to contact several major banks before even finding a forward quote on the rupiah. The consensus of currency forecasters at the moment, however, is that the rupiah will continue to strengthen, possibly rising to Rp10,200/$ over the coming 90 to 120 days. Analyze the prospective sale and make a hedging recommendation. How much in U.S. dollars will Elan receive in 90 days…

Modify Figure 10.10 to show how much would be sold in both sectors in the absence of anti-price gouging laws. Discuss how these quantities differ from those that result from implementing such laws. Figure 10.10    

On June 1, 2016, the exchange rate for U.S. dollars and euros was approximately $1.00 = €0.90, as shown in the market for U.S. dollars below. Suppose the interest rate is expected to fall in the European Union (relative to the interest rate in the U.S.). How will this affect the value of the dollar relative to the euro? Exchange Rate (€/S) 0.9 Quantity of Dollars Traded. D₁ S₁