Question

g Suppose that the United States trades only with Germany and Japan. Suppose also that in 2010 the spot rates were 0.70 euro = $1 peso and ¥110 = $1, and that in 2015 the spot rates were 0.84 euro = $1 and ¥99 = $1 peso. If United States trade is 50 percent with Germany and 50 percent with Japan, calculation of the effective exchange rate for the United States indicates that the dollar

Answer 1

Check the explanation

Step-by-step explanation:

US dollar - Euro exchange rate = $1.20 per euro

This means,

$1.20 = 1 euro

$1 = 1/1.20 euro

$1 = 0.83 euros --------------------- (i)

US dollar - Mexican pesos exchange rate = $0.10 per peso

This means,

$0.10 = 1 peso

$1 = 1/0.10 peso

$1 = 10 pesos ---------------------------- (ii)

Equating (i) and (ii)

0.83 euros = 10 pesos or,

10 pesos = 0.83 euros

1 peso = 0.83/10 euros

1 peso = 0.083 euros

The euro - peso exchange rate is 0.083 euros per peso.

PROBLEM 2

Japanese yen-US dollar exchange rate = 85 yens per dollar

This means,

$1 = 85 yens --------------- (i)

US dollar-euro exchange rate = $1.75 per euro

This means,

$1.75 = 1 euro

$1 = 1/1.75 euro

$1 = 0.57 euros ------------------ (ii)

Equating (i) and (ii)

85 yens = 0.57 euros or,

0.57 euros = 85 yens

1 euro = 85/0.57 yens

1 euro = 149.12 yens

The yen-euro exchange rate is 149.12 yens per euro.