Question

In: Economics

In a hypothetical world, between last year and this year, the CPI in Mexico rose from...

In a hypothetical world, between last year and this year, the CPI in Mexico rose from 100 to 115 and the CPI in Russia rose from 85 to 100. Mexico's currency unit, the Peso(MXN), was worth 8.81(MXN) per Canadian dollar last year and is worth 8.73(MXN) per Canadian dollar this year. Russia's currency unit, the Ruble(RUB), was worth 23.28(RUB) per Canadian dollar last year and is worth 23.14(RUB) per Canadian dollar this year.

a) Find the percentage change from last year to this year in Mexico's nominal exchange rate with Russia (measured as # of Pesos/1 Russia Ruble).
NOTE: Please keep as much precision as possible throughout your calculations and round off your final answer to two decimal places.

Percentage change = 0%


b) Find the percentage change from last year to this year in Mexico's real exchange rate with Russia. Again, assume that we are measuring the nominal exchange rate portion as the # of Pesos/1 Russia Ruble.
NOTE: Please keep as much precision as possible throughout your calculations and round off your final answer to two decimal places.

Percentage change = 0%

c) Relative to Russia, do you expect Mexico's exports to be helped or hurt by these changes in exchange rates?
Helped
Hurt

Solutions

Expert Solution

(c)The exchange rate refers to the rate at which goods of one country are purchased by the other country. For trading with the other country, there is a need to have the currency of other country. The exchange rate between Mexico and Russia increases. With these changes in the exchange rate, the price of exported goods from Mexico to Russia is expensive to Russia. Therefore, the demand for Mexico exports falls and hence, this change in the exchange rate will hurt Mexico’s exports.

Rahul Sunny answered 8 months ago
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