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Answer: It cannot be concluded that the price to consumer will increase just from the fact that the monetary policy changes.
**Correct Answer: C** **Explanation:** C is correct. There is not a linear dependency between changes in exchange risks and changes in the price of products. This is an example of transaction risk and while the parts become more expensive for the German manufacturer, there are other parameters that affect the price of the kayak, so we cannot conclude that the price to consumer will increase. A is incorrect. Rates change frequently, but this does not mean the price of the products change as often. B is incorrect for the same reason as A. D is incorrect. Lower inflation leads to currency appreciation.
Author: LeetQuiz .
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A sporting goods manufacturer in Germany buys all metal hardware used for assembling a packable kayak from a factory in Mexico. The monetary policy recently implemented by Banco de México has created favorable conditions for sustained economic growth, significantly lowering inflation levels. The relevant economic parameters are provided below:
Which of the following conclusions could the manufacturer correctly make about the relevant effect of the policy change on the business?
A
The price to the consumer will decrease based on purchasing power parity, making the kayak parts less expensive to the German manufacturer.
B
The price to the consumer will increase since lower inflation leads to MXN currency appreciation, making the kayak parts more expensive to the German manufacturer.
C
It cannot be concluded that the price to consumer will increase just from the fact that the monetary policy changes.
D
Lower inflation leads to MXN currency depreciation, making the kayak parts more expensive to German manufacturer, leading to the need to increase prices on finished kayaks to consumers.