Why depreciation of the domestic currency could improve a firm's competitiveness against its foreign competitors?Group of answer choicesThe firm's brand becomes more attractive.All options are correct.Domestic labor becomes relatively cheaper.Foreign labour becomes relatively cheaper.
Question
Why depreciation of the domestic currency could improve a firm's competitiveness against its foreign competitors?Group of answer choicesThe firm's brand becomes more attractive.All options are correct.Domestic labor becomes relatively cheaper.Foreign labour becomes relatively cheaper.
Solution
The correct answer is: Domestic labor becomes relatively cheaper.
Here's why:
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When a country's domestic currency depreciates, it means that the value of the currency decreases relative to other currencies.
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This means that the cost of domestic labor, which is paid in the domestic currency, also effectively decreases for foreign buyers.
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If a firm is competing with foreign companies that rely on more expensive labor, the firm's products or services could become more price competitive as a result.
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This could lead to increased sales and market share for the firm, improving its competitiveness against its foreign competitors.
Note: While a firm's brand could potentially become more attractive due to a lower price point, this is not a direct result of currency depreciation and depends on other factors such as marketing and product quality. Therefore, the statement "All options are correct" is not accurate in this context.
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