Assume that Ford Motor Company obtains some of its inputs in Mexico (foreign sourcing).As the peso becomes a larger portion of Ford's total costs,a dollar depreciation leads to a (an) ____ in the peso cost of a Ford vehicle and a (an) ____ in the dollar cost of a Ford compared to the cost changes that occur when all input costs are dollar denominated.
A) Decrease,increase
B) Increase,decrease
C) Decrease,decrease
D) Increase,increase

Question

Quizplus · Accepted Answer

As the peso becomes a larger portion of Ford's total costs, a dollar depreciation leads to a decrease in the peso cost of a Ford vehicle because the peso becomes cheaper relative to the dollar. This makes it less expensive for Ford to purchase inputs in Mexico. However, a dollar depreciation also leads to an increase in the dollar cost of a Ford vehicle compared to the cost changes that occur when all input costs are dollar denominated. This is because the peso becomes more expensive relative to the dollar, making it more expensive for Ford to sell vehicles in the United States.

Assume That Ford Motor Company Obtains Some of Its Inputs