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there is a question as follows:
Mant Co is a manufacturing company operating in country Westland, and it neither imports nor exports.
if the currency of Westland strengthens with respect to other currencies, what is the likely effect on Mant Co’ sales?
the answer is sales are likely to decrease.
but i don’t understand why?? since it neither imports nor exports
Let’s say the current exchange rate between a Westland $ and a US$ is
1 W$ = 1.5 US$
So, is something made in the US sells there for $30, it would sell in Westland for 30/1.5 = 20.W$
If the W$ strengthened to 2 US$/W$, then the selling price in Westland would be only 30/2 = $15 W$. So that import has got cheaper resulting in less of the home-made product being sold.
I understand that when currency strengthens imports get cheaper cause buying power is high. But I don’t understand why sales decrease.
If imports are cheaper should sales not generally go up.
And also this country doesn’t import or export, so with a stronger currency should the economy of the country not be better off.
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