Question

In: Finance

The following table shows hypothetical monthly exchange ratesfor the Canadian dollar and the euro, as...

The following table shows hypothetical monthly exchange rates for the Canadian dollar and the euro, as well as the standard deviation of the percentage changes for each currency.

Use the table to select the percent change from March 1 to April 1 in the Canadian dollar exchange rate and the euro exchange rate.

Month

Value of the Canadian Dollar

Monthly Percent Change in Canadian Dollar Value

Value of Euro

Monthly Percent Change in Euro Value

(US Dollars per Canadian Dollar)

(US Dollars per euro)

January 1$0.79
$1.27
February 10.81.27%1.291.57%
March 10.78-2.50%1.311.55%
April 10.77(-1.02%, -1.15%, -0.90%, -1.28%)1.28(-2.29%, -2.06%, -1.83%, -1.60%)
May 10.781.30%1.26-1.56%
June 10.780.00%1.281.59%
July 10.791.28%1.290.78%
Standard Deviation
1.60%
1.75%

The percentage change in the Canadian dollar from March 1 to April 1 represents (No change, an appreciation, a depreciation) in the value of the Canadian dollar.

In this example, the value of the (Canadian dollar, Euro) was more volatile over the entire time period.

The bold is the answer choices, please explain each answer.

Solutions

Expert Solution

1. April 1 Monthly percentage change in Canadian dollar = (April 1 value - March 1 value) / March 1 value

April 1 Monthly percentage change in Canadian dollar = (0.77 - 0.78) / 0.78

April 1 Monthly percentage change in Canadian dollar = -1.28%

2. April 1 Monthly percentage change in Euro = (April 1 value - March 1 value) / March 1 value

April 1 Monthly percentage change in Euro = (1.28 - 1.31) / 1.31

April 1 Monthly percentage change in Euro = -2.29%

3. The percentage change in the Canadian dollar from March 1 to April 1 represents a depreciation in the value of the Canadian dollar. (Because in march 1 we can buy a Canadian dollar for 0.78 USD but in April we can buy a Canadian dollar for 0.77 USD thus we can say it is depreciation)

4. In this example, the value of the Euro was more volatile over the entire time period.(Because the Higher standard Deviation, The higher the volatility is, Euro has 1.75% which is higher than Canadian dollar thus Euro is highly volatile)

jeff jeffy answered 2 years ago
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