Modern managers in today's business world have many more issues and concerns regarding managing business enterprises relative to before the advent of globalization. In that vein, they must be careful that they fully and completely take into account the global economy so that they develop and adopt correct and proper strategies that add value to the firms they are managing (i.e. that create and sustain positive economic profits for their firms)..These endeavors often involve keeping detailed track of, as well as precise management of, foreign exchange rate movements and changes.
Suppose that a change in tastes occurs in the Eurozone (the 19 European Union nations that currently use the euro [€] as their official, domestic currency) such that residents in Eurozone nations are prompted to purchase more goods and services from the U.S. In other words, Eurozone consumers purchase more imports from the U.S.
A. What would be the effect on the U.S. dollar-euro (i.e. U.S. dollars per euro, or $/€) exchange rate as a result of this situation? Would this exchange rate rise or fall? Explain carefully.
B. Which currency has appreciated? Which currency has depreciated?
C. How would this situation affect the sales of a firm that produces in the U.S. but sells goods and services to Eurozone residents? Explain carefully.