Question

1. On January 1, 1975, the Mexican peso/U.S.$ exchange rate was Ps 12.5 = $1. By 1985, the exchange rate stood at Ps 208.9 = $1. a. Are these direct or indirect quotes? b. By how much did the Mexican peso appreciate or depreciate against the dollar over this 10-year period? c. By how much did the dollar appreciate or depreciate against the peso over this period? 2. In the second half of 1997, the Indonesian rupiah depreciated by 84% against the U.S. dollar. By how much did the dollar appreciate against the rupiah?

Answer 1

1) a) when one unit of domestic currency value shown in foreign currency ,that indirect quote.

When ome unit of foreign currency value shown in domestic currency,that direct quote.

So it is direct quote.

b) indirect quote:1 peso in 1975=1/12.5$=0.08

1 peso in 1985=1/208.9

Change in value of peso=1/208.9 -1/12.5 =-0.0752

Depreciation=0.0752/0.08]*100=94%

C) value change of dollar=208.9-12.5=196.4

Appreciation of dollar=196.4/12.5]*100=1571.2%

2)lets assume 1 rupiah=0.1 $

After depreciation of 84% ,1 rupiah=0.016$

Direct quote,

Initial,1$ =1/0.1=10 rupiah

After appreciation,1$=1/0.0.16=62.5

Change in value=62.5-10=52.5

Appreciation=52.5/10]*10=525%