Question

Suppose that you go on vacation to Canada every summer. Last year, the hotel room where you stayed cost C$100 per night, and it costs the same this year. The exchange rate was 1.04 USS/C$ last year, and it is 0.95 US$/C$ this year. This means you will pay than you paid last year. per night this year The U.S. dollar-Canadian dollar exchange rate is essentially the price of a Canadian dollar in terms of U.S. dollars. When this price falls, the Canadian dollar is said to depreciate against the U.S. dollar. Thus, from your analysis, you can conclude that when the Canadian dollar depreciates against the U.S. dollar, Canadian goods and services become ▼ expensive for Americans. DeutschAuto is a German automaker that pays most of its production costs in euros. Suppose that in 2007, DeutschAuto's cost of producing a car was 23,000 and that the company sold a car in the United States for $36,000. Further, suppose that the dollar-euro exchange rate rose from 1.35$/ in 2007 to 1.55S/ in 2008. DeutschAuto's euro cost of production did not change, and the company continued to charge $36,000 for its cars in the United States, as DeutschAuto believes this is its profit-maximizing price. Examine how the rise in the dollar-euro exchange rate affects DeutschAuto's profits from sales in the United States. (Hint: Ignore transportation costs.) In 2007, DeutschAuto's revenue from sales in the United States was DeutschAuto's profit was per car. Given the cost of production, this means that per car In 2008, DeutschAuto's revenue from sales in the United States was DeutschAuto's profit was per car. Given the cost of production, this means that per car The dollar-euro exchange rate is essentially the price of one euro in terms of dollars. When this price rises, the euro is said to appreciate against the dollar. Thus, from your analysis, you can conclude that when the euro appreciates against the dollar, it becomes companies to profit from exporting their products to the United States for European Suppose that the Japanese government and private investors hold $150 billion in U.S. Treasury securities. When the Japanese yen-U.S. dollar exchange rate is 95 /$, these assets are worth will be worth If the dollar appreciates to 102 /$, the U.S. Treasury securities held in Japarn The yen-dollar exchange rate is essentially the price of one dollar in terms of yen. When this price rises, the dollar is said to appreciate against the yen. Thus, from your analysis, you can conclude that when the dollar appreciates against the yen, holders of U.S. Treasury securities in Japan experience in their wealth

Answer 1

Solution:-

(A). The exchange rate was 1.04 US$/C$ last year it means we payed 100 * 1.04 = 104 US dollar last year.

Now it is 0.95 US$/C$ this year. And we still pays 100 canadian dollar that is equviavalent to 100 * 0.95 = 95 US dollar.

Difference is 104 - 95 = 9 US dollars. This means we will pay $9 more per night this year than you paid last year.

(B).  when the Canadian dollar appreciates against the U.S. dollar, Canadian goods and services become Less expensive for Americans. Because now Americans will have to pay more dollars for converting into a canadian dollar.

(C). In 2007, Deutsch Auto's revenue from sales in the United States was 36000/1.35 = €26,666.67 per car. Given the cost of production, this means that Deutsch Auto's profit was Revenue-Cost that is €26,666.67 - €23,000 = €6,666.67 per car.

In 2007, Deutsch Auto's revenue from sales in the United States was 36000/1.55 = €23,225.81 per car. Given the cost of production, this means that Deutsch Auto's profit was €23,225.81 -  €23,000 = €225.81 per car.

(D). when the euro appreciates against the dollar, it becomes more difficult for European companies to profit from exporting their products to the United States. Because European goods get more expensive.

(E). When the Japanese yen–U.S. dollar exchange rate is 95 ¥/$, these assets are worth 150 * 95 = ¥14.25 trillion.
If the dollar depreciates to 102 ¥/$, the U.S. Treasury securities held in Japan will be worth 150 * 102 = ¥ 15.30 trillion.

(F). when the dollar depreciates against the yen, holders of U.S.
Treasury securities in Japan experience 15.30 - 14.25 = ¥1.05 trillion loss in their wealth.