Question

Phillips NV produces DVD players and exports them to the United States. Last year the exchange rate was​ $1.25/euro and Phillips charged 120 euro per player in Euroland and​ $150 per DVD player in the United States. Currently the spot exchange rate is​ $1.45/euro and Phillips is charging​ $160 per DVD player. What is the degree of pass through by Phillips NV on their DVD​ players?

Answer 1

Answer: The exchange rate pass through is 41.7 = 6.666666667%÷16%

Explanation:

Currently, from last year to the current year, there has been a 16% increase change in the exchange rate and a 6.667% change in the price. The exchange rate pass through is 41.7 = 6.666666667%÷16%

For every increase in 1% of the exchange rate, there has been a 41.7% increase in the current price of the DVD player.