Question 6 Chapter 18 Pricing foreign goods
Explanation: Close Explanation
The nominal exchange rate for the U.S. dollar–euro tells you how many U.S.
... [Show More] dollars you must pay to
buy EUR 1.00. In this example, the nominal exchange rate for the U.S. dollar–euro is $1.3457, which
means that EUR 1.00 is worth about $1.35 in U.S. currency. Therefore, a bookcase that sells for EUR
770 is worth .
6. Pricing foreign goods
The nominal exchange rate is the price of one currency in terms of another currency. A nominal 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 nominal exchange rate data for June 13, 2014, in terms of U.S. dollars
per unit of foreign currency. Use the information in the table to answer the questions that follow.
Foreign Currency
Cost of One Unit of Foreign Currency
(Dollars)
Brazilian real (BRL) 0.5148
Canadian dollar (CAD) 0.9213
Euro (EUR) 1.3457
Japanese yen (JPY) 0.008226
Mexican peso (MXN) 0.0926
United Kingdom pound (GBP) 1.9695
Suppose that on June 13, 2014, an ornamental bookcase handmade in Germany is priced at EUR 770. The
approximate U.S. dollar price of the bookcase would be .
Points: 1 / 1
If the nominal exchange rate for the U.S. dollar–euro rises from $1.3457 to $1.547555 per euro, the U.S.
dollar in value, or , relative to the euro.
Points: 1 / 1
Explanation: Close Explanation
decreases depreciates
The rise in the nominal exchange rate for the U.S. dollar–euro implies that the U.S. dollar decreases in
value, or depreciates, relative to the euro. Whereas it cost about $1.35 to buy EUR 1.00 previously, it
now costs about $1.55. The U.S. dollar has lost value relative to the euro—more dollars are now
required to obtain EUR 1.00. This means that the euro gains value, or appreciates, relative to the U.S.
dollar.
The number of euro needed to purchase $1.00 was
initially . At the new nominal exchange rate, euro
holders can spend fewer euro to obtain $1.00: . [Show Less]