Question

1.The United States still participates in the gold standard since it eliminates exchange rate risk between the dollar and other foreign currencies.

True or False

2.The peso appreciated by 4% from the Eurozone point of view. What is the percentage appreciation/depreciation of the euro from the Mexican point of view? Enter your answer in decimal format and round any intermediate steps and for final answer to four decimals (EX: .XXXX).

Answer 1

1. The statement is false. The gold standard was abolished on 5th June 1933 by President Roosevelt. Further in 1971, President Nixon passed a law stating that Gold will not be converted to money at a fixed rate thus abolishing Gold Standard permanently.

2. Let us consider a case when 1 Euro = 25 Pesos.

So 1 Peso = 0.04 Euro

Since the Peso appreciated by 4%, so now 25 pesos can be bought by 1.04 Euro

Or 1.04 Euro = 25 Peso

or 1 Euro = 25/1.04 Peso

or 0.04 Euro = 25/1.04 * 0.04 Peso = 0.9615 Peso

So The same Euro which could be bought by 1 Peso now needs only 0.961538 Peso.

So depreciation of Euro = (1 - 0.961538) / 1 = 3.8462%

So an appreciation of peso by 4% from Eurozone point of view is equal to depreciation of Euro by 3.8462% from Mexico's point of view.

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