/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 1 The U.S. dollar exchange rate in... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 26: Problem 1

The U.S. dollar exchange rate increased from \(\$ 0.96\) Canadian in June 2011 to \(\$ 1.03\) Canadian in June \(2012,\) and it decreased from 81 Japanese yen in June 2011 to 78 yen in June 2012. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the yen?

Short Answer

Expert verified
The U.S. dollar appreciated against the Canadian dollar and depreciated against the Japanese yen.

Step by step solution

01

- Understand Currency Appreciation and Depreciation

Currency appreciation occurs when one currency becomes stronger compared to another currency, meaning you can buy more of the other currency with the same amount of the stronger currency. Conversely, depreciation occurs when a currency becomes weaker, meaning you can buy less of the other currency.
02

- Calculate USD to Canadian Dollar Changes

Compare the exchange rates from June 2011 and June 2012. In June 2011, 1 USD could buy 0.96 CAD. In June 2012, 1 USD could buy 1.03 CAD. Since 1 USD can buy more CAD in 2012 than in 2011, the USD has appreciated against the Canadian dollar.
03

- Calculate USD to Yen Changes

Compare the exchange rates from June 2011 and June 2012. In June 2011, 1 USD could buy 81 JPY. In June 2012, 1 USD could buy 78 JPY. Since 1 USD can buy fewer JPY in 2012 than in 2011, the USD has depreciated against the yen.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Currency Appreciation
Currency appreciation happens when one currency strengthens relative to another. This means you can get more of the other currency for the same amount of the stronger currency. For example, if the exchange rate of USD to CAD increases from 0.96 to 1.03, it means the USD has appreciated. It's now stronger than before, allowing people to get more Canadian dollars for the same US dollar. Appreciation generally indicates a more robust economy or increased investor confidence in that currency.
Currency Depreciation
Currency depreciation is the opposite of appreciation. It happens when a currency weakens compared to another currency, meaning it buys less of the other currency. For instance, if the USD to JPY exchange rate falls from 81 to 78, the USD has depreciated. It has become weaker, so you get fewer yen for the same US dollar. Depreciation can occur due to various factors like political instability, economic downturns, or lower interest rates.
Foreign Exchange Market
The foreign exchange market, or Forex, is where currencies are traded. It's the largest financial market globally, with trillions of dollars exchanged daily. The Forex market operates 24/7, allowing for continuous currency trading. Major players include central banks, financial institutions, corporations, and individual traders. Exchange rates fluctuate based on supply and demand, influenced by economic indicators, interest rates, and geopolitical events.
USD to CAD
The exchange rate between the US dollar (USD) and the Canadian dollar (CAD) is vital for trade and travel between the United States and Canada. For instance, if the rate goes from 0.96 to 1.03, it means that one US dollar can now buy more Canadian dollars. This change signifies that the USD has appreciated against the CAD during that period. This can impact various sectors like tourism and imports/exports, making US goods more expensive for Canadians and vice versa.
USD to JPY
The USD to JPY exchange rate is crucial for economic relations between the United States and Japan. If the rate decreases from 81 to 78, it indicates that the USD has depreciated against the Japanese yen. This implies a weaker USD, buying fewer yen, which can affect trade. American products might become cheaper in Japan, boosting exports, but Japanese imports might become more expensive for US consumers. Movement in these rates is closely watched by investors and policymakers alike.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The U.S. dollar exchange rate increased from \(\$ 0.96\) Canadian in June 2011 to \(\$ 1.03\) Canadian in June \(2012,\) and it decreased from 81 Japanese yen in June 2011 to 78 yen in June 2012. What was the value of 100 yen in terms of U.S. dollars in June 2011 and June 2012 ? Did the yen appreciate or depreciate against the U.S. dollar over the year June 2011 to June \(2012 ?\)

The U.S. price level is \(115,\) the Japanese price level is \(92,\) and the real exchange rate is 98.75 Japanese real GDP per unit of U.S. real GDP. What is the nominal exchange rate?

On October \(25,2000,\) the exchange rate was 0.8307 U.S. dollar per euro. It increased to 1.588 U.S. dollars per euro on July 16,2008 and then decreased to 1.0557 U.S. dollar per euro on March \(16,2015 .\) If the euro is expected to bounce back to its 2008 exchange rate, explain how this would affect the demand for and the supply of euros in the foreign exchange market?

Brazil's Overvalued Real The Brazilian real has appreciated 33 percent against the U.S. dollar and has pushed up the price of a Big Mac in Sao Paulo to \(\$ 4.60,\) higher than the New York price of \(\$ 3.99 .\) Despite Brazil's interest rate being at 8.75 percent a year compared to the U.S. interest rate at near zero, foreign funds flowing into Brazil surged in October. Source: Bloomberg News, October 27,2009. Does purchasing power parity hold? If not, does PPP predict that the Brazilian real will appreciate or depreciate against the U.S. dollar? Explain.

Suppose that yesterday, the U.S. dollar was trading on the foreign exchange market at 0.75 euros per U.S. dollar and today the U.S. dollar is trading at 0.80 euros per U.S. dollar. Which of the two currencies (the U.S. dollar or the euro) has appreciated and which has depreciated today?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.