The Dollar drops, the EURO rises. But what happens to German exports?

Question

Now that the dollar drops, German exports have to suffer, correct? If Germans want to make the same profit by exporting to the US they will have to increase the US price of their goods which will ultimately decrease the demand in the US, right? Or, option B, they leave the price unchanged, maintain the same demand, but make less profit.

Now what would they most likely go for? What makes the most sense?

Answer 1

Germany exports don't rely very much on the USA, I think ist less then 5 %. Sorry.

Answer 2

The German exporter has to decide how much of the euro rise to "pass through" to his American customers. If the euro rises 10%, he can pass it all through by raising prices by 10%. What happens next depends on the price elasticity of demand: if the demand elasticity is (say) 0.5, he will suffer a 5% reduction in quantity demanded. His total revenue in dollars will rise by about 5%, and his total costs will fall since he is not making as many widgets. But none of this takes into account what his American competitors do when he raises prices. They may raise theirs too! And none of this takes into account possible currency hedging by the German exporter, which could easily offset some or all of his losses caused by dollar depreciation. And he may have arranged to borrow dollars so his dollar interest payments are funded with his dollar export earnings. It is pretty complicated.