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Chapter 18: Q3QT (page 638)

Question: Why did Subaru gain more than Toyota?

Short Answer

Expert verified

Subaru gained more because it produced all its products only in Japan, and thus, a weaker yen benefitted Subaru more than Toyota.

Step by step solution

01

Explanation

The exchange rate plays an important role for companies like Subaru and Toyota. A weaker currency makes exports more competitive. Thus, the sales of Japan-oriented companies will increase after the yen becomes weak.

However, the gain of Subaru exceeded that of Toyota because of its way of operation. Toyota moved out most of its production activities to other countries like the US, Mexico, and others, while Subaru produced only in Japan. A weaker yen made it easier for Subaru to increase its sales while Toyota’s gain was dependent on other countries’ currency, which affected their production cost.

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Most popular questions from this chapter

What effect do you think the collapse of the U.S. housing bubble in 2008, and the ensuing Great Recession, had on international capital flows into the United States?

Draw a diagram, similar to Figure 18-7, representing the foreign exchange situation of China when it kept the exchange rate fixed. Express the exchange rate as U.S. dollars per yuan. Then show with a diagram how each of the following policy changes will eliminate the disequilibrium in the market.

  1. China no longer fixes its exchange rate and allows it to float freely.
  2. Placing restrictions on foreigners who want to invest in China
  3. Removing restrictions on Chinese who want to invest abroad
  4. Imposing taxes on Chinese exports, such as shipments of clothing, that are causing a political backlash in the importing countries

Mexico discovers huge reserves of oil and starts exporting oil to the United States. Describe how this would affect the following.

  1. The nominal peso–U.S. dollar exchange rate
  2. Mexican exports to the United States of other goods and services
  3. Mexican imports from the United States of goods and services

A basket of goods and services costs 100intheUnitedStatescosts800pesosinMexico,andthecurrentnominalexchangerateis10pesosperU.S.dollar.Overthenextfiveyears,thecostofthatmarketbasketrisesto120 in the United States and 1,200 pesos in Mexico, although the nominal exchange rate remains at 10 pesos per U.S. dollar. Calculate the following.

a. The real exchange rate now and five years from now, if ' 'today's price index in both countries is 100

b. Purchasing power parity today and five years from now

Question: Why is a weaker yen good for the profits of Japanese auto companies?
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