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Just-for-Kids, Inc
Just-for-Kids, Inc., is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities.
Which of the following would best explain to Tom what devaluation in a target market means?
A) Devaluation increases the price of a country's exports on world markets.
B) Devaluation reduces the price of imports like those of Just-For-Kids.
C) Devaluation increases the price of imports like those of Just-For-Kids.
D) Devaluation prohibits foreign companies from investing in the country.
Expert Solution
The answer is C) Devaluation increases the price of imports like those of Just-For-Kids. When a nation devalues its currency relative to its trading partners', its exports become cheaper and will likely increase. However, imports become more expensive, and the domestic currency now has less purchasing power for foreign goods.
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