Question

6. Pricing foreign goods 

The nominal exchange rate is the price of one currency in terms of another currency. A nominal exchange rate specifies how many units of one country's currency are needed to buy one unit of another country's currency. 

Suppose the following table presents nominal exchange rate data for November 26, 2014, in terms of U.S. dollars per unit of foreign currency. Use the information in the table to answer the questions that follow 

                              Cost of One Unit of Foreign Currency

       Foreign Currency                   (Dollars)

       Brazilian real (BRL)                 0.3666

      Canadian dollar (CAD)                0.8493

          Euro (EUR)                       1.3288

       Japanese yen (JPY)                 0.009748

      Mexican peso (MXN)                   0.0889

   United Kingdom pound (GBP)              1.8965

 Suppose that on November 26, 2014, a marble statue handmade in the United Kingdom is priced at GBP 530. The approximate U.S. dollar price of the statue would be _______ .

 If the nominal exchange rate for the U.S. dollar-Mexican peso rises from $0.0889 to $0.10668 per Mexican peso _______ ,  in value, or the _______ , relative to the U.S. dollar.

Answer 1

Answer 2

Suppose that on November 26,2014, an omamental book case handmade in canada is priced at CAD 1.180. The approximate U.S dollar price of bookcase would be 1180 times 0.8493 = $ 1002.174 i. e 1002 .174 US dollar. (Am$1002) If the nominal exchange rate for the U.S dollar - Japanese yen falls from $ 0.009748 to $ 0.0082858 per Japanese yen, the U > S dollar increases in value, or appreciate relative to Japanese yen . This is because let suppose 1 year is previously equivalent to $ 0.0097478 or we can say 1000 yen is equal to 9.748 US dollar . Now when 1 yen = $ .0082558 then 1000 yen = 8.2858 Us dollar SO we are getting less US dollar by giving same amount of yen . SO US dollare value increases or there is dollar value increases or there is appreciation of U.S dollar

Answer 3

Made in Germany is priced in EUR 760 In US is 760x1.3288- $1009.88 When the exchange rate has fallen from $0.0889 to S0.066675, it implies that less Mexican peso would be paid when exchanged forUS dollar So, the US dollar appreciated in value, or appreciated relative to the Mexican peso Numerical Demonstration: Consider the value as $100 With an exchange rate of 0.0889 8.89 Pesos before the change in exchange rate. With an exchange rate of 0.066675-6.6675 Pesos after the change in exchange rate. So, the value has depreciated as the US dollar value has appreciated.