Question

Assume that Samsung of South Korea obtains all inputs  from South Korean suppliers whose costs are denominated in won. Also assume that the company has the cost structure shown in the table below to manufacture cell phones. If the won appreciates from ₩1,200/$ to ₩1,000/$ what is the new dollar cost of a Samsung phone?

Hypothetical Costs of Producing a Cell Phone for Samsung of South Korea
Cost Component		Won Cost		Dollar Equivalent Cost
Labor		120,000
Glass		60,000
Other materials		90,000
Other costs		30,000
Total costs		300,000

		$300
		$400
		$240
		$250
		$375

If wheat costs $4 per bushel in the United States and 2 British pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:

		$1.0/£
		$8.0/£
		$2.0/£
		$0.50/£
		£2.0/$

Answer 1

Q-1 if won appreciated by W1200/$ to W1000/$ then the new dollar cost is determined by following table:-

Cost components	Won cost	Dollar equivalent Cost
Labour	120000	120000/1000 = $120
Glass	60000	60000/1000= $60
Other material	90000	90000/1000= $90
Other costs	30000	30000/1000=$30
Total cost	300000	300000/1000= $300

so if won appreciate from W1200/$ to W1000/$ then New Dollar cost of samsung phone is $300.

Q-2=> In the presence of purchasing power parity the exchange rate is:-

= when 2£ per bushel then $4 per bushel

so if 1£ per bushel then..... how many dollar ?

= £1*$4 /£2

= $2

so the Exchange rate is $2.0/£