8. (LO 3) Suppose that a certain type of SUV costs $32 000 in Canada, but sells for 18 000 British pounds in theUnited Kingdom, and that the nominal exchange rate is 1 Canadian dollar = 0.45 British pounds.a) What is the value of the real exchange rate?b) In which country is the SUV cheaper?

a) Value of the Real Exchange Rate: The real exchange rate reflects the relative purchasing power of…

Answered: 8. (LO 3) Suppose that a certain type…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume in 2010, 1 Swiss franc cost.55 British pounds and in 2012 it cost .52 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012? O 2010: 1.81 francs, 2012: 1.92 francs 2010: 1.78 francs, 2012: 1.96 francs O 2010: 1.71 francs, 2012: 2.00 francs O 2010: 1.73 francs, 2012: 1.97 francs
At the official exchange rate of 2.5 dirham per euro, the euro is and the Moroccan dirham is that Moroccans pay for European exports than they would with a free-floating exchange rate. At the official dirham price of euros, there is a of euros in the foreign exchange market. which means Suppose the governments of the Eurozone and Morocco reevaluate their currencies so that their official exchange rate is now 1 dirham per 1 euro. This action results in of the euro.
esources Assume the following: (1) the interest rate on six-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50, while the six-month forward price of the pound is $1.485. If the price of the six-month forward pound were to then U.S. investors would no longer earn an extra return by shifting funds to the United Kingdom. O rise to $1.52 O rise to $1.55 O fall to $1.40 O fall to $1.47
Suppose that the price of the three-month forward pound is $1.97. Will a U.S. investor benefit from covered interest arbitrage? (Hint: The three- 1.5%.) month U.K. interest rate is 10% = 2.5%, and the three-month U.S. interest rate is No, because there will be a loss of 2%. O Yes, the investor will benefit by 4%. O No, because there will be a loss of 3%. O No, because there will be a loss of 4%.
8. Why exchange rates matter Suppose that you go on vacation to Canada every summer. Last year, the hotel room where you stayed cost C$100 per night, and it costs the same this year. The exchange rate was 1.04 US$/C$ last year, and it is 0.95 US$/C$ this year. This means you will pay per night this year than you paid last year. The U.S. dollar-Canadian dollar exchange rate is essentially the price of a Canadian dollar in terms of U.S. dollars. When this price falls, the Canadian dollar is said to depreciate against the U.S. dollar. Thus, from your analysis, you can conclude that when the Canadian dollar depreciates against the U.S. dollar, Canadian goods and services become expensive for Americans. DeutschAuto is a German automaker that pays most of its production costs in euros. Suppose that in 2007, DeutschAuto's cost of producing a car was €23,000 and that the company sold a car in the United States for $36,000. Further, suppose that the dollar-euro exchange rate rose from 1.35$/ €…
Suppose that the forward rate between $ and British Pound at 3 months is F=1.5 If you are a trader expecting that the sport rate in 3 months will be 2, you should... You should contract today to buy forward foreign currency (British Pound) in the future for 2, expecting to be able to sell at 1.5 You should contract today to buy forward foreign currency (British Pound) in the future for 1.5, expecting to be able to sell at 2 You should contract today to sell forward foreign currency (British Pound) in the future for 1.5, expecting to be able to buy at 1.5 You should contract today to sell forward foreign currency (British Pound) in the future for 1.5, expecting to be able to buy at 2
4. Pricing foreign goods The exchange rate is the price of one currency in terms of another currency. An exchange rate specifies how many units of one country's currency are needed to buy one unit of another country's currency. Suppose the following table forecasts exchange rate data for March 16, 2018, in terms of U.S. dollars per unit of foreign currency. Use the information in the table to answer the questions that follow. Cost of One Unit of Foreign Currency Foreign Currency (Dollars) Lithuanian litas (LTL) 0.3666 Canadian dollar (CAD) 0.8493 Euro (EUR) 1.3288 Mexican peso (MXN) 0.0889 United Kingdom pound (GBP) 1.8965 Suppose that on March 16, 2018, an antique woven rug handmade in Lithuania is priced at LTL 2,750. The approximate U.S. dollar price of the rug would be If the exchange rate for the U.S. dollar-Lithuanian litas rises from $0.3666 to $0.4216 per Lithuanian litas, the U.S. dollar v in value, or relative to the Lithuanian litas. 925 PM search N O 33°F 12/5/2021 21 hp…

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8. (LO 3) Suppose that a certain type of SUV costs $32 000 in Canada, but sells for 18 000 British pounds in the United Kingdom, and that the nominal exchange rate is 1 Canadian dollar = 0.45 British pounds. a) What is the value of the real exchange rate? b) In which country is the SUV cheaper?