Question

An FX trader in Germany is watching the market, noticing that the U.S. dollar suddenly changes in value against the euro, moving from an exchange rate of €0.8909/$ to €0.8709/$. Thus, the dollar has ____________ by ____________ (hint: from the point of view of a German FX trader, based in Frankfurt)

Answer 1

2.30% appreciated

Step-by-step explanation:

The computation of the change in dollar is shown below;

But before that we have to find out the base currency which is

As we know that

Old rate = $0.8909 / Euro

And New rate = $0.8709 / Euro

Therefore changing the base currency to Dollar, we get

Old rate = (1 ÷ 0.8909)

= Euro 1.122460 / $

New rate = (1 ÷ 0.8709)

= Euro 1.148237 / $

The more number of Euors could be bought when there is a change in rates together the dollar is also used. So dollar has appreciated.

Now the change in dollar is

Change in dollar = (New rate ÷ Old rate) -1

= (1.148237 ÷ 1.122460) - 1

= 1.0229647 - 1

= 0.0229647

= 2.29647% or 2.30%