International Business > Currency Rate Changes from an Importer’s Point of View

In class we discussed the hypothetical exchange rates between the US$ and the Mexican Peso. We assumed that the exchange rate will be 10 Pesos to $1, as the original rate. Then we assumed that the Peso is depreciated, and it will cost 20 Pesos to buy $1 US. We looked at the same problem if the Peso appreciates compare to the dollar, and 5 Pesos will equal $1. We looked at this problem from a Mexican firm’s point of view. No let’s see how appreciation or depreciation of the Dollar affects the American importer.

Let’s say for argument’s sake that a case of Corona in the US costs $10, which is 100 Pesos. So the US importer will pay $10 for a case of imported beer. This is the usual price. Now let’s assume that the Mexican Peso depreciates, or with other words the Dollar appreciates, and 20 Pesos will be $1. Now the US importer will only have to pay $5 for the case of Corona. This means the importer is getting the product for cheaper. Also the beer will cost less to the consumer, which means that domestic products are more expensive compare to the Corona.

Now what if the Peso appreciates, and the Dollar depreciates, and you can only buy 5 Pesos for $1. Then the import price of the beer will go up to $20, and this is very bad for the beer maker, because it means that his beer will not be competitive on the US market. The domestic beers will be less expensive, therefore more competitive compare to the Mexican Corona. So while the cheap Dollar is good for exports, it is bad for import. It makes import prices more expensive.

 

 

 

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