Question

If we know the exchange rate between Country A's currency and Country B's currency and we know the exchange rate between Country B's currency and Country C's currency, then we can compute the exchange rate between Country A's currency and Country C's currency. a. Suppose the exchange rate between the Japanese yen and the Canadian dollar is currently ¥106 = $1 and the exchange rate between the British pound and the Canadian dollar is £0.66 = $1. b. Suppose the exchange rate between the yen and dollar changes to ¥112 = $1 and the exchange rate between the pound and dollar changes to £0.79 = $1. Has the dollar appreciated or depreciated against the yen? Has the dollar appreciated or depreciated against the pound? Has the yen appreciated or depreciated against the pound? a. The exchange rate between the yen and the pound is ¥/£. (Round your response to the nearest whole number) b. The Canadian dollar has against the yen The Canadian dollar has against the pound The yen has against the pound

Answer 1

Part 1) We have the following information

(¥/$) = $1 = ¥106 or ($/¥) = ¥1 = $0.0094

(£/$) = $1 = £0.66 or ($/£) = £1 = $1.5

Now, dividing (¥/$) by (£/$) we get

(¥/$)/(£/$) = (¥/$) × ($/£) = (¥/£)

106/0.66 = 160.60

(¥/£) = 160.60. This means that £1 = ¥ 160.60 or 1¥ = £0.0062

Part 2) Now it is given that (¥/$) has changed from 106 to 112, it means while earlier $1 was worth ¥106, now it is worth ¥112. So, it means that the Canadian Dollar has appreciated against the Yen as its value has increased.

It is also given that (£/$) has changed from 0.66 to 0.79, it means that while earlier $1 was worth £0.66, now it is worth £0.79. So, it means that the Canadian Dollar has appreciated against the Pound as its value has increased.

Again

(¥/$)/(£/$) = (¥/$) × ($/£) = (¥/£)

(¥/£) = 112/0.79 = 141.77

(¥/£) = 141.77. This means that £1 = ¥ 141.77 or 1¥ = £0.0070

So, it means the Yen has appreciated against the Pound as its value has increased.