Problem 32 A British pound cost $\$ 2.00$... [FREE SOLUTION]

Chapter 16: Problem 32

A British pound cost $\$ 2.00$ in U.S. dollars in 2008 , but $\$ 1.27$ in U.S. dollars in $2017 .$ Was the pound weaker or stronger against the dollar? Did the dollar appreciate or depreciate versus the pound?

Short Answer

Expert verified

In conclusion, between 2008 and 2017, the British pound got weaker against the U.S. dollar as the exchange rate decreased from 1 GBP = $2.00 USD to 1 GBP = $1.27 USD. Furthermore, the U.S. dollar depreciated versus the pound, as the amount of GBP required to buy 1 USD increased from 0.50 GBP to 0.79 GBP during the same period.

Step by step solution

Understand the problem and given exchange rates

Given, in 2008, a British pound cost $2.00 in U.S. dollars. In other words, 1 British Pound (GBP) = $2.00 United States Dollars (USD). In 2017, 1 British Pound (GBP) = $1.27 United States Dollars (USD). Now, let us compare these exchange rates to understand the relationship between GBP and USD.

Determine if the pound got weaker or stronger

In 2008, 1 GBP = $2.00 USD In 2017, 1 GBP = $1.27 USD If the exchange rate of GBP to USD decreases, it means that the pound got weaker, and if it increases, the pound got stronger. Comparing the exchange rates, we see that in 2008 it took more USD ($2.00) to buy 1 pound than it did in 2017 ($1.27). The exchange rate decreased, which means the pound got weaker against the dollar.

Determine if the dollar appreciated or depreciated

Now, let's determine the relationship between USD and GBP. If the number of pounds it takes to buy one dollar decreases, then the dollar has appreciated. If the number of pounds to buy one dollar increases, then the dollar has depreciated. Let's calculate this by finding the ratio of GBP/USD: In 2008, $\frac{1}{2.00} =$ $0.50$ GBP/USD In 2017, $\frac{1}{1.27} =$ $0.79$ GBP/USD Comparing these values, in 2008 it took fewer pounds (0.50) to buy 1 USD compared to 2017 (0.79). The amount of GBP required to buy 1 USD increased, which means the dollar has depreciated against the pound. To conclude, between 2008 and 2017, the British pound got weaker against the U.S. dollar, and the U.S. dollar depreciated versus the pound.