Question

Consider the data in the table below:


Nominal Exchange Rates for the U.S. Dollar

Country	Foreign currency/U.S. dollar	U.S. dollars/foreign currency
United Kingdom (pound)	0.641	1.559
Canada (Canadian dollar)	1.008	0.992
Mexico (peso)	12.39	0.081
Japan (yen)	83.338	0.012
European Union (euro)	0.756	1.322

a. Calculate the nominal exchange rate between the Mexican peso and the Japanese yen. Express in two ways.

Instructions: Enter your responses rounded to three decimal places.

One peso = ___ yen

One yen = ___ peso


b. Suppose the peso appreciates by 10 percent against the dollar while the value of the yen against the dollar remains unchanged.

Instructions: Enter your responses rounded to three decimal places.

One peso = __ yen

One yen = ___ peso

Answer 1

(a) 1$ can buy (be exchanged for) 12.39 pesos and 83.338 yens. This means, that 12.39 peso can buy 83.338 yens or 1 peso can buy 83.338/12.39=6.726 yen. Also, since 83.338 yen can buy 12.39 peso, 1 yen can buy 12.39/83.338=0.149 peso.

Hence, we have the answers as below.

One peso = 6.726 yen

One yen = 0.149 peso

(b) If peso appreciates by 10 percent, that would mean that one peso can buy more dollars than before. Hence, before, one peso would buy 0.081 dollars, and now, it would buy 0.081+0.10*0.081 or 0.0891 dollars. That would mean that on dollar would buy 1/0.089 peso or 11.223 peso.

Now, 11.223 peso would buy 83.338 yens, ie 1 peso would buy 83.338/11.223 or 7.426 yens. Also, as 83.338 yens would buy 11.223 peso, 1 yen would buy 11.223/83.338 or 0.135 peso.

Hence, we have the answer as below.

One peso = 7.426 yen

One yen = 0.135 peso