# Hint notice that the exchange rate is given in terms

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What is today’s exchange rate? (hint: Notice that the exchange rate is given in terms of the dollar value of the £, and the problem would be real simple if I told you the percentage change in the value of the £. But, here you

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are given the percentage change in the value of the dollar. So, you have a couple of different ways to solve this. ONE is to use the little known fact that has to be true and determine the percentage change in the value of the pound, then apply that number. TWO is to take the inverse of the exchange rate, apply the 7% depreciation in the value of the dollar, then “inverse again” to get the exchange rate back to \$/£. ANS: \$1.9383/£ 6. The exchange rate at the start of the year is ¥100/\$. You are a U.S. investor with \$100. You invest in a Japanese stock at the start of the year. Since the start of the year, the stock has had a 12% return and the dollar has appreciated 6%. What is your \$- denominated rate of return over this time period. ANS: 5.66% 7. Suppose you bought a stock for \$50 and today it is worth \$60. When you bought the stock, the CPI index was at 151, and now it is at 167. What is your nominal rate of return? What is your real rate of return? ANS: nominal return = 20% real return = 8.50% 8. In the spot quote, MXP 11.5000/\$, what is the base currency? What is the terms currency? ANS: base currency is the \$, terms currency is the Mexican peso (MXP) 9. If you import a good that costs €154, and the exchange rate is €.6300/\$, what is the dollar cost of the import? (hint: simply multiply the cost of the good by the exchange rate in such a way that the € symbols will cancel out. )
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• Spring '12
• Scott
• Exchange Rate, United States dollar, ISO 4217

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