A USFirm Plans to Shift from Exporting to Production in China

question 11

Multiple Choice

A U.S.firm plans to shift from exporting to production in China to serve the Chinese market.Which of the following statements would best explain this decision?

• A)China's currency is appreciating relative to the U.S. dollar.
• B)The firm is nearing capacity utilization in its U.S. plant.
• C)The company need not alter its products for the Chinese market.
• D)Transportation costs have become low relative to production costs.

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Definitions:

Inflation Premium

The extra yield that investors demand on securities to compensate for the risk of inflation reducing the value of future cash flows.

Fisher Effect

The Fisher Effect describes the relationship between nominal interest rates, real interest rates, and inflation, asserting that the nominal interest rate is equal to the real interest rate plus inflation.

Interest Rate Risk

The risk of changes in interest rates that can adversely affect the value of an investment.

Term Structure

The relationship between interest rates or bond yields and different terms or maturities, depicted in a curve.