00:01
Hello students, here is a question.
00:02
A firm produces a goods for which substitute goods are produced in all the countries depreciation of a firm of a local currency should.
00:11
So, we have four options, five options given here, we have to choose the right out of this.
00:16
So, the first one will be decrease local sales, local sales as foreign competition in local market is reduced and option b is decrease in the firm, firm's export dominated, denominated in local currency and our option c is decrease in the return, decrease in the return earned on the firm, the firm's foreign bank deposit and option d is decrease the firm cash outflow required to pay for, required to pay for imported supplies denominated in a foreign currency, denominated in a foreign currency and our option e is none of the above.
02:18
So, these are the options we have, let us discuss the answer for this.
02:23
The firm produces goods for which substitute goods are produced in all the countries, this means the firm faces a competition of foreign products in both local and foreign markets.
02:33
Now, if the firm's local currency depreciates, it means the local currency become weaker relative to foreign currency, this we can have a several effects of a firm.
02:42
So, when it comes to option a, decrease local sale as foreign competition in local market is reduced, this is unlikely to happen because the firm still faces competition from foreign products in local markets even if the local currency depreciates.
02:58
So, this is a wrong answer and decrease in the firm exports denominated in a local currency, this is possibility because if local currency depreciate, the firm exports become more expensive in foreign currencies which can reduce the demand for the firm products but not fully agreed for the b option...