Chapter 22, Problem 1QP

a.

Summary Introduction

To discuss: The number of euros Person X can purchase for $100, and how many dollars can be bought from 100 euros.

Explanation of Solution

Purchase of euros for $100:

$\frac{100}{1.376}=€72.67$

Thus, €72.67 can be purchased for $100.

Purchase of dollars for €100:

$100\times 1.376=\$137.60$

Thus, $137.60 can be purchased for €100.

b.

Summary Introduction

To discuss: The number of country S franc’s Person X can purchase for $100, and how many dollars can be bought from 100 country S francs.

Explanation of Solution

Purchase of country S francs for $100:

$100\times 0.888=88.80$

Thus, 88.80 country S francs can be purchased for $100.

Purchase of dollars for 100 country S francs:

$\frac{100}{0.888}=\$112.61$

Thus, $112.61 can be purchased for 100 country S francs.

c.

Summary Introduction

To discuss: The increase or decrease in the exchange rate of B pounds

Explanation of Solution

If there is a depreciation in the B pounds then $1 will purchase more B pounds so the direct exchange rate is ($/£) will decline, and the indirect exchange rate (£/$) will rise.

d.

Summary Introduction

To discuss: The choice of person X on the dollars of country U or country C.

Explanation of Solution

One dollar of country U can purchase 1.095 country C dollars. Thus, one dollar of country U worth’s more than one dollar of country C.