Economics【Reading 18】Sample 2012

bapswarrior

If the exchange rate value of the euro goes from $0.95 to $1.10, then the euro has:

A) depreciated and the Dutch will find U.S. goods more expensive.

B) depreciated and the Dutch will find U.S. goods cheaper.

C) appreciated and the Dutch will find U.S. goods cheaper.

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An exchange rate is a ratio that describes how many units of one currency you can buy per unit of another currency. The numerator will be in the currency in which the quote is made, and the denominator is the other unit of the currency you are comparing. A currency appreciates when it rises in value relative to another foreign currency. Likewise, a currency depreciates when it falls in value relative to another foreign currency. An appreciation in value of a currency makes that country's goods more expensive to residents of other countries. The depreciation of the value of a currency makes a country's goods more attractive to foreign buyers.

bapswarrior

You observe that the exchange rate for pesos is 8 per U.S. dollar, and the exchange rate for Danish krones is 6 per U.S. dollar. What is the peso to krone (MXN/DKK) exchange rate?

A) Cannot be determined with the data given.

B) 1.333.

C) 0.750.

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8 MXN/USD / 6 DKK/USD = 1.333 MXN/DKK

bapswarrior

On Tuesday, currency quotes at the closing of the market were 105 yen/$ and 0.9350 $/€. On Wednesday, at the closing of the market the quotes were 107.5 yen/$ and 0.9450 $/€. The dollar:

A) depreciated against the yen and depreciated against the euro.

B) appreciated against the yen and appreciated against the euro.

C) appreciated against the yen and depreciated against the euro.

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The dollar appreciated against the yen, it now takes fewer dollars to buy yen.
The dollar depreciated against the euro, it now takes more dollars to buy euros.