Question

Venezuelan Bolivar (A). The Venezuelan govemment officially floated the Venezuelan bolivar (Bs) in February 2002. Within weeks, its value had moved from the pre-float fix of Bs778/S to Bs1,025/$. a. Is this a devaluation or a depreciation? b. By what percentage did the value change? a. Is this a devaluation or a depreciation? (Select from the drop-down menu.) This is a case in which a government has changed its currency from a govemmentally determined fixed rate, to a regime in which the currency is allowed to change in value based on supply and demand forces in the market. As a result of the move, the currency's value in this case was a "depreciation" against the U.S. dollar b. By what percentage did the value change? The percentage devaluation is %. (Round to two decimal places.)

Answer 1

This was a depreciation. One way of reasoning this change in common terms is - The 'price' of Bolivar in USD terms went down. Initially, one used to pay 778 Bs for 1 $ but after few weeks, the rate 1025 Bs for each $. When the prices increase, the currency depreciates

Appreciation of USD=	=(1025-778)/778
	31.75%
Depreciation of Bs=	=((1/1025)-(1/778))/(1/778)
	-24.10%