Question

question 10 (1 point)
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consider an exchange rate situation in which 1 indian rupee equals 0.40 japanese yen. given this information, which of the following statements is true?

a) the cost of operating an indian firm in japan is lower.

b) the cost of operating a japanese firm in india is lower.

c) a japanese tourist can buy more goods and services in india.

d) an indian tourist in japan can buy more goods and services in japan.

Answer:

1 Indian rupee = 0.40 Japanese yen means 1 yen = 1/0.40 = 2.5 rupees. So Japanese currency (yen) is stronger. A Japanese tourist in India can exchange yen for more rupees, buying more goods/services. Option a: Indian firm in Japan would pay more (rupee is weaker). Option b: Japanese firm in India would pay more (yen is stronger, so converting yen to rupee gives more rupees, but cost in rupees would be same, but from yen perspective, it's more? Wait no—wait, if 1 rupee = 0.4 yen, then to pay 1 rupee cost, Japanese firm needs 0.4 yen. Indian firm in Japan: to pay 1 yen cost, needs 1/0.4 = 2.5 rupees. So Japanese firm in India: cost in yen is lower? Wait no, let's re-express. Let's say a service in India costs 100 rupees. Japanese firm pays 100 * 0.4 = 40 yen. Indian firm in Japan: service in Japan costs 100 yen, Indian firm pays 100 / 0.4 = 250 rupees. So Japanese firm in India pays less (40 yen) than Indian firm in Japan (250 rupees). Wait, but option c: Japanese tourist in India: 1 yen = 2.5 rupees, so more rupees per yen, so can buy more. Option d: Indian tourist in Japan: 1 rupee = 0.4 yen, so less yen per rupee, can buy less. So option c is correct? Wait no, wait the options:

a) Indian firm in Japan: cost in yen, so to pay yen, they need to convert rupees to yen. Since 1 rupee = 0.4 yen, so for each yen, they need 2.5 rupees. So operating in Japan (paying yen) would be expensive, so a is wrong.

b) Japanese firm in India: paying rupees, convert yen to rupees. 1 yen = 2.5 rupees, so for each rupee, they pay 0.4 yen. So if a service in India is 100 rupees, Japanese firm pays 40 yen. Indian firm in India would pay 100 rupees. But is the cost "lower"? Wait, the cost in their home currency: Japanese firm pays 40 yen, Indian firm pays 100 rupees. But we can't compare yen and rupees directly, but the question is about "cost of operating"—maybe in terms of their home currency. Wait, maybe the key is purchasing power. Since yen is stronger (1 yen buys 2.5 rupees), a Japanese tourist in India can get more rupees for their yen, so can buy more goods/services (option c). Let's check each option:

a) Indian firm in Japan: needs to spend rupees to get yen. Since rupee is weak, they get less yen per rupee, so operating costs (in yen terms, but paid with rupees) would be higher. So a is wrong.

b) Japanese firm in India: spends yen to get rupees. Yen is strong, so they get more rupees per yen, so operating costs (in rupee terms, paid with yen) would be lower? Wait, if a service in India is 100 rupees, Japanese firm pays 40 yen, Indian firm pays 100 rupees. But is 40 yen "lower" than 100 rupees? Not directly, but maybe the question is about the amount in their home currency. Wait, maybe the confusion is between "cost" in local currency vs home currency. Alternatively, think of exchange rate: rupee is weaker (1 rupee = 0.4 yen), so yen is stronger. So:

• For a Japanese tourist in India: 1 yen = 2.5 rupees, so they can buy more (since their currency is stronger), so option c is correct.

• For an Indian tourist in Japan: 1 rupee = 0.4 yen, so they get less yen, can buy less (so d is wrong).

• For Indian firm in Japan: to pay yen, they need more rupees (since 1 yen = 2.5 rupees), so cost is higher (a is wrong).

• For Japanese firm in India: to pay rupees, they need less yen (1 rupee = 0.4 yen), so cost is lower? Wait, but option b says "cost of operating a Japanese firm in India is lower"—but compared to what? If we compare to an Indian firm in India, the Japanese firm pays in yen, but the cost in rupees is the same. Wait, maybe the question is about the exchange rate's impact on purchasing power for tourists or firms. Let's re-express:

Exchange rate: 1 INR = 0.4 JPY → 1 JPY = 2.5 INR.

So:

• Japanese tourist in India: 1 JPY = 2.5 INR, so they can buy more goods (since each yen gives more rupees), so option c is true.

• Indian tourist in Japan: 1 INR = 0.4 JPY, so each rupee gives less yen, so can buy less (d is false).

• Indian firm in Japan: needs to pay JPY, so for each JPY, they need 2.5 INR, so operating costs (in INR) are high (a is false).

• Japanese firm in India: needs to pay INR, so for each INR, they pay 0.4 JPY, so operating costs (in JPY) are low? But option b says "cost of operating a Japanese firm in India is lower"—but lower than what? If compared to an Indian firm in India, the Japanese firm's cost in JPY is lower, but the Indian firm's cost in INR is the same. However, the question is which statement is true. Let's check the options again:

a) Cost of operating Indian firm in Japan is lower: False, because rupee is weak, so converting rupees to yen is expensive.

b) Cost of operating Japanese firm in India is lower: Let's see, if a service in India costs 100 INR, Japanese firm pays 40 JPY, Indian firm pays 100 INR. But 40 JPY vs 100 INR—we can't directly compare, but maybe the question is about the amount in their home currency. Wait, maybe the key is that when a currency is weaker, it's cheaper for foreign firms to operate in that country? Wait, no—if INR is weaker (1 INR = 0.4 JPY), then Japanese firms can convert JPY to INR at a favorable rate (1 JPY = 2.5 INR), so they get more INR for their JPY, meaning operating in India (paying INR) is cheaper for them (since they spend less JPY to get the same INR). Similarly, Indian firms operating in Japan (paying JPY) would need to spend more INR to get JPY (since 1 JPY = 2.5 INR), so it's more expensive. So:

• Japanese firm in India: lower cost (b) vs Indian firm in India? Wait, no—Indian firm in India pays INR, Japanese firm in India pays JPY. But the cost in terms of their home currency: Japanese firm pays 0.4 JPY per INR, so for 100 INR, 40 JPY. Indian firm pays 100 INR. So if we consider the cost in their home currency, Japanese firm pays less (40 JPY vs 100 INR, but INR and JPY are different currencies). Wait, maybe the question is about purchasing power for tourists. Let's check option c: Japanese tourist in India. Since 1 JPY = 2.5 INR, they can buy more goods (because their currency is stronger), so c is true.

Option d: Indian tourist in Japan. 1 INR = 0.4 JPY, so they get less JPY, so can buy less, so d is false.

So the correct answer is c. Wait, but earlier I thought maybe b, but let's re-examine.

Wait, the exchange rate is 1 INR = 0.4 JPY. So:

• To buy 1 JPY, you need 2.5 INR (since 1 INR = 0.4 JPY → 1 JPY = 1/0.4 = 2.5 INR).

So:

• Indian firm in Japan: needs to buy JPY with INR. So for each JPY, they pay 2.5 INR. So operating in Japan (paying JPY) is expensive (a is false).

• Japanese firm in India: needs to buy INR with JPY. For each INR, they pay 0.4 JPY. So operating in India (paying INR) is cheap (b is true? Wait, but then why is c also a candidate?

Wait, let's take an example. Suppose a hotel room in India costs 1000 INR per night.

• Japanese firm operating in India: to pay 1000 INR, they need 1000 * 0.4 = 400 JPY.

• Indian firm operating in India: pays 1000 INR.

So in terms of their home currency, Japanese firm pays 400 JPY, Indian firm pays 1000 INR. But 400 JPY and 1000 INR are different currencies. However, if we consider the[SSE onError error]