Question

can you please do all work in steps on a paper if possible

Exercises: The Foreign Exchange Market and Exchange Rate Determination EXERCISE 7 (Exchange rate determination) The afghani, Afghanistan's currency, has a perverse tendency to go up whenever sitting governments fall. So as soon as commentators labelled Osama bin Laden the prime suspect in the September 11 World Trade Center attack, currency traders figured that the Taliban would become a target of the United States, bringing prospects of a new government and, perhaps, economic development -and a rise in the afghani's value. So it has. Under the Taliban, the exchange rate -quoted as the number of Pakistani rupees it takes to buy 100,000 afghanis - fell to around 85 rupees. September 11 galvanized the market. By mid- November 2001, military gains by the Northern Alliance opposition pushed the exchange rate up to 165. a) By how much has the afghani appreciated against the rupee? b) Similarly, between September 11 and mid-November, the dollar went from 78,000 to 34,000 afghanis. By how much did the dollar depreciate against the afghani during this two-month period? By how much did the afghani appreciated against the dollar?

Answer 1

a) Before September 11,

For 1 Pakistan Rupee amount of Afghani required=100000/85=1176.47

After September 11, amount of Afghani required to buy 1 Pakistan Rupee=100000/165=606.06

Appreciation in Afghani =(1176.47-606.06)/1176.47=0.4848

Appreciation in Afghani in percentage =48.48%

b)Appreciation of dollar against Afghani:

September 11: Dollar required for 1 Afghani=1/78000 dollars=0.000012820513

Mid November, dollar required for 1 Afghani=1/34000=0.000029411765

Depreciation in dollar =(0.000029411765-0.000012820513)/0.000012820513=1.294118

Depreciation in dollar in percentage=129.4%

Appreciation in Afghani against dollar:

(78000-34000)/78000=0.564103

Appreciation in percentage =56.4%