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Chapter 18: Q18 (page 496)

If the Canadian dollar to U.S. dollar exchange rate is 1.24 and the British pound to U.S. dollar exchange rate is 0.68, what must be the Canadian dollar to British pound exchange rate?

Short Answer

Expert verified

The exchange rate would be1.8235Canadiandollars per Britishpound.

Step by step solution

01

Concept Introduction

Exchange rate is that the rate at which domestic currency is exchanged with foreign currency. Exchange rate provides the relative price of fine in terms of domestic and foreign currency. charge per unit is incredibly volatile and it affects the economy's foreign trade. charge per unit is calculated as:

Exchange Rateet=Foreign pricelevelPfDomestic PricelevelPd

02

Explanation of Solution 

Exchange rate ofCanadiandollartoUS dollar is1.24.

Exchange rate of BritishpoundtoUS dollar is0.68.

Calculation of the exchange rate betweenCandB:

localid="1646989707158" Exchangerate=1.24脳10.68=1.8235

localid="1646989794752" role="math" Therefore, the exchange rate would be1.8235Canadiandollars per Britishpound.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find data on the exchange rate of U.S. dollars per British pound (DEXUSUK). A Mini Cooper can be purchased in London, England, for拢17,865orinBoston,UnitedStates,for$23,495.

a. Use the most recent exchange rate available to calculate the real exchange rate of the London Mini per Boston Mini.

b. Based on your answer to part (a), are Mini Coopers relatively more expensive in Boston or in London?

c. What price in British pounds would make the Mini Cooper equally expensive in both locations, all else being equal?

Go to the St. Louis Federal Reserve FRED database, and find data on the daily dollar exchange rates for the euro (DEXUSEU), British pound (DEXUSUK), and Japanese yen (DEXJPUS). Also find data on the daily three-month London Interbank Offer Rate, or LIBOR, for the United States dollar (USD3MTD156N), euro (EUR3MTD156N), British pound (GBP3MTD156N), and Japanese yen (JPY3MTD156N). LIBOR is a measure of interest rates denominated in each country鈥檚 respective currency.

a. Calculate the difference between the LIBOR rate in the United States and the LIBOR rates in the three other countries using the data from one year ago and the most recent data available.

b. Based on the changes in interest rate differentials, do you expect the dollar to depreciate or appreciate against the other currencies?

c. Report the percentage change in the exchange rates over the past year. Are the results you predicted in part (b) consistent with the actual exchange rate behavior?

If nominal interest rates in America rise but real interest rates fall, predict what will happen to the U.S. dollar exchange rate

Go to the St. Louis Federal Reserve FRED database, and find data on the daily dollar exchange rates for the euro (DEXUSEU), British pound (DEXUSUK), and Japanese yen (DEXJPUS). Also find data on the daily three-month London Interbank Offer Rate, or LIBOR, for the United States dollar (USD3MTD156N), euro (EUR3MTD156N), British pound (GBP3MTD156N), and Japanese yen (JPY3MTD156N). LIBOR is a measure of interest rates denominated in each country鈥檚 respective currency.

a. Calculate the difference between the LIBOR rate in the United States and the LIBOR rates in the three other countries using the data from one year ago and the most recent data available.

b. Based on the changes in interest rate differentials, do you expect the dollar to depreciate or appreciate against the other currencies?

c. Report the percentage change in the exchange rates over the past year. Are the results you predicted in part (b) consistent with the actual exchange rate behavior?

The Mexican peso is trading at 11 pesos per dollar. If the expected U.S. inflation rate is 1% while the expected Mexican inflation rate is 15% over the next year, given PPP, what is the expected exchange rate in one year?
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