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What is the degree of pass through by Phillips NV on their DVD players?

What is the degree of pass through by Phillips NV on their DVD players?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 $1.65/euro and Phillips is charging $180 per DVD player. What is the degree of pass through by Phillips NV on their DVD players? - 32% - 62.5% - 4.1% - 20.0%
Transcribed Image Text: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 $1.65/euro and Phillips is charging $180 per DVD player. What is the degree of pass through by Phillips NV on their DVD players? - 32% - 62.5% - 4.1% - 20.0%
Expert Solution
Step 1: Introduction

Exchange pass-through refers to the way in which changes in foreign exchange rates affect the prices of imported goods and services in a domestic market.

We can determine the degree of pass through using the formula below:

D e g r e e space o f space p a s s space t h r o u g h space equals space fraction numerator percent sign space c h a n g e space i n space p r i c e space o f space D V D thin space i n space U S D over denominator percent sign space C h a n g e space i n space e x c h a n g e space r a t e end fraction

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