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The exchange rate between the currency of Country X

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The exchange rate between the currency of Country X

by aspirant2011 » Wed Sep 21, 2011 9:39 am
The exchange rate between the currency of Country X and that of Country Y has historically favored the currency of Country Y. Because of this, citizens of Country Y often take their vacations in Country X, where the exchange rate makes hotels and restaurants more affordable. Yet, citizens of Country Y rarely purchase clothing or electronics in Country X, despite the fact that those items are more expensive in their home country, even when sales taxes are taken into account. Which of the following, if true, would best explain the buying habits of the citizens of Country Y?

"¢ Citizens of Country Y prefer the fashions available in their own country.
"¢ Stores in Country X receive the latest fashions and technology several months after they are available in Country Y.
"¢ The citizens of Country X resent the buying power of the currency of Country Y.
"¢ The government of Country Y imposes tariffs on imported goods.
"¢ The currencies of Country X and Country Y are both weak compared to the currency of Country Z.

[spoiler]Doubt: I am not able to understand the statement "even when sales taxes are taken into account". Does the sales taxes mean of country Y or country X?[/spoiler]
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by cans » Wed Sep 21, 2011 9:49 am
IMO D
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by GmatKiss » Wed Sep 21, 2011 10:03 am
cans wrote:IMO D
Does this answer, clear the doubt posted?
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by GmatKiss » Wed Sep 21, 2011 10:07 am
aspirant2011 wrote:The exchange rate between the currency of Country X and that of Country Y has historically favored the currency of Country Y. Because of this, citizens of Country Y often take their vacations in Country X, where the exchange rate makes hotels and restaurants more affordable. Yet, citizens of Country Y rarely purchase clothing or electronics in Country X, despite the fact that those items are more expensive in their home country, even when sales taxes are taken into account. Which of the following, if true, would best explain the buying habits of the citizens of Country Y?

"¢ Citizens of Country Y prefer the fashions available in their own country.
"¢ Stores in Country X receive the latest fashions and technology several months after they are available in Country Y.
"¢ The citizens of Country X resent the buying power of the currency of Country Y.
"¢ The government of Country Y imposes tariffs on imported goods.
"¢ The currencies of Country X and Country Y are both weak compared to the currency of Country Z.

[spoiler]Doubt: I am not able to understand the statement "even when sales taxes are taken into account". Does the sales taxes mean of country Y or country X?[/spoiler]
Please note that sales tax is imposed by Country X, whereas Import Tariff is imposed by Country Y!
Both are different.

But even after taking this note, B seems to be very close!
What is the source of this question?

Am looking for some experts to help us here.

TIA,
GK
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by sl750 » Wed Sep 21, 2011 10:19 am
Choice D. Clearly, if citizens of Country Y have to pay an import tax for importing goods from Country X, although the prices of items there are relatively less expensive because of the favorable exchange rate, it defeats the purpose of buying goods from Country X. In other words there is no economic benefit for citizens of Country Y

The sales tax is referring to the tax on items sold in Country Y

B only talks about a delay in availability of goods. If the citizens have to wait a few more months, they could always club their vacation and shopping activities around the time these items are available there. It might not discourage them form shopping in Country X .We are not dealing with essential items
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by gmatclubmember » Wed Sep 21, 2011 11:14 am
To me the answer looks like B instead of D.

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by GmatKiss » Wed Sep 21, 2011 11:32 am
Both B and D are potential contenders, however it is difficult to identify a clear advantage!
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by mad2011 » Wed Sep 21, 2011 11:38 am
Based on premises it has be D
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by GmatKiss » Wed Sep 21, 2011 11:46 am
GmatKiss wrote:Both B and D are potential contenders, however it is difficult to identify a clear advantage!
Can some expert help us here!

TIA,
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by saketk » Wed Sep 21, 2011 8:39 pm
GmatKiss wrote:Both B and D are potential contenders, however it is difficult to identify a clear advantage!
Hi GK, From the stem we can see that the author is mainly talking from the price perspective despite the fact that those items are more expensive in their home country' --

Option B may or may not be the reason, why? -- B says that the items are launched very late in country X. Suppose a product 'P' is launched after 4-5 months after its launch in the country Y. But, if the price difference is significant then a person coming from the country Y will have enough reasons to buy it. Now - this cannot always happen. Some might have already bought the prodcut in their home country. But, if the country Y imposes heavy tariffs (import duty) on imported goods, which is a Price factor, people might be discouraged to buy anything outside the country Y.
IMO D is better.

I hope this helps.
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by amit2k9 » Wed Sep 21, 2011 8:55 pm
focal point is cost and not fashion.
1.A,C and E can be clearly eliminated.Between B and D, D encompasses the cost factor,giving an interpretation that the cost gets increased for importing the items for people of country Y.

You can also refer - https://www.manhattangmat.com/forums/dis ... t7677.html

2. Doubt - X item price 50units Y item price 1 unit ( 1 unit Y = 50 units X )

sales tax percentage - X 100% Y 10%

after tax price --- X 50+50 = 100 units Y = 1+0.1= 1.1 unit
thus Item price at X becomes costlier than the price at Y.
Similarly, reverse condition is also possible.

That's, why sales tax has been used here.
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by aspirant2011 » Thu Sep 22, 2011 5:37 am
Guys if I am able to properly understand then sales tax mentioned is for country x,right?
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by GmatKiss » Thu Sep 22, 2011 7:47 am
aspirant2011 wrote:Guys if I am able to properly understand then sales tax mentioned is for country x,right?
Yes!

Sales Tax - Country X
Import Tariff - Country Y

-GK
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