Back in 2000, Demir, just out NYU business school, accepted a job in Turkey. The
ID: 1108852 • Letter: B
Question
Back in 2000, Demir, just out NYU business school, accepted a job in Turkey. The pay was good: 32,724 Turkish Lira (TRY), at the then exchange rate S1.00=0.5454 TRY, that meant $60,000/year. His job was to sell PCs to corporate clients in Turkey. Raised by Turkish parents in New York, his knowledge of the language and culture would help. As he left, he promised his parents that he would return to the US once a year. Use the data in the following table (source www.oanda.com/currency/converter/) to answer the following questions.
Date
US$
TRY
Xchg
rate
PC LandedCost $
PC Cost
TRY
Demir Salary TRY
Demir
Salary US$
RT
Air
Fare $
RT
Air
Fare TRY
RT
% of Demir
Salary
Pair
Jeans $ in US
Pair
Jeans
in TRY
1/15/2000
1
0.5454
1500
818.1
32724
60000
1200
654
0.020
50
27.3
1/15/2001
1
0.6687
1500
1003.0
32724
48937
1200
802
0.025
50
33.4
1/15/2002
1
1.3965
1500
2094.7
32724
23433
1200
1675
0.051
50
69.8
1/15/2003
1
1.7039
1500
2555.8
32724
19205
1200
2045
0.062
50
85.2
1/15/2004
1
0.7932
1500
1189.8
32724
41256
1200
952
0.029
50
39.7
1/15/2005
1
0.7633
1500
1145.0
32724
42869
1200
916
0.028
50
38.2
1/15/2006
1
0.8239
1500
1235.8
32724
39718
1200
989
0.030
50
41.2
1/15/2007
1
0.7586
1500
1138.0
32724
43134
1200
910
0.028
50
38.0
1:Did the TRY appreciate or depreciate against the US $ from 2000 to 2009?
2:Between 2000 and 2007 the RT air fare from Ankara to New York stayed the same at $1200 bought from www.cheaptickets.com. When Demir bought his RT tickets he had to pay in TRY. What happened to the amount of money he had to pay in TRY over the years (% of his salary)?
3:What happened to the landed cost of a PC in TRY from 2000 to 2009?
4:What pricing policies would you recommend to the US employer of Demir exporting PCs to Turkey under these circumstances?
Date
US$
TRY
Xchg
rate
PC LandedCost $
PC Cost
TRY
Demir Salary TRY
Demir
Salary US$
RT
Air
Fare $
RT
Air
Fare TRY
RT
% of Demir
Salary
Pair
Jeans $ in US
Pair
Jeans
in TRY
1/15/2000
1
0.5454
1500
818.1
32724
60000
1200
654
0.020
50
27.3
1/15/2001
1
0.6687
1500
1003.0
32724
48937
1200
802
0.025
50
33.4
1/15/2002
1
1.3965
1500
2094.7
32724
23433
1200
1675
0.051
50
69.8
1/15/2003
1
1.7039
1500
2555.8
32724
19205
1200
2045
0.062
50
85.2
1/15/2004
1
0.7932
1500
1189.8
32724
41256
1200
952
0.029
50
39.7
1/15/2005
1
0.7633
1500
1145.0
32724
42869
1200
916
0.028
50
38.2
1/15/2006
1
0.8239
1500
1235.8
32724
39718
1200
989
0.030
50
41.2
1/15/2007
1
0.7586
1500
1138.0
32724
43134
1200
910
0.028
50
38.0
Explanation / Answer
In 2009 1 USD was equal to 0.6764TRY
1: When compard to the exchange rate of 2000. TRY as a currency has depreciated because now more TRY is needed to be given in exchange of 1USD.
2: The airfare in TRY has seen overall increase from 654TRY to 910TRY. In between the price in TRY has increased much more but then it came down.
3: In 2009 exchange rate is 0.6764TRY so value of landed cost in TRY will be 1500*0.6764=1014.6TRY. So landed cost of PC in try has increased since 2000 i.e. 818.1TRY.
4: We see that with some fluctuations the overall value of TRY as a currency has depreciated over the years, so when currency depreciates the value of exports increases and exporters are benefitted. While for US who is exportig PC to Turkey the valuation will decrease so they should decrease price.
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