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Question 45 (3 point) If the exchange rate between the U.S. dollar and the British Pound...

Question 45 (3 point)

If the exchange rate between the U.S. dollar and the British Pound is $1.66 per Pound, then what is the Pound per dollar exchange rate? (Express your answer as xx.xx.)

Your Answer:

If the exchange rate between the U.S. dollar and the Euro is $1.72 per Euro and the exchange rate between the U.S. dollar and the Japanese yen is 108.36 Yen per dollar, then what is the Yen per Euro exchange rate?

Your Answer:

If the exchange rate between the U.S. dollar and the British Pound is $1.52 per Pound and the annual rate of inflation is 2.24 percent in the United States and 3 percent in Great Britain, what will be U.S. dollar per Pound exchange rate in one year? (Express your answer as XX.XX)

Your Answer:

Solutions

Expert Solution

1. Solution is given below

The exchange rate given is USD/GBP = 1.66

This means 1 GBP is equivalent to 1.66 USD

Now what we need to find out is exchange rate GBP/USD. (GBP is Pound)

Thus exchange rate GBP/USD would be

1/1.66 = 0.6024

or 0.60 (rounded off to two decimals)

Hence we can say 1 USD = 0.60 Pounds. (rounded off to two decimals)

2. Solution is given below

The exchange rate given is USD/EURO = 1.72

This means 1 EURO is equivalent to 1.72 USD

and YEN/USD = 108.36

This means 1 USD is equivalent to 108.36 YEN

Using the formula of Cross rates we will find out YEN/EURO

Therefore YEN/EURO = 1.72 * 108.36

= 186.38 (rounded off to two decimals)

3. Solution is given below

The exchange rate given is USD/GBP = 1.52

This means 1 GBP is equivalent to 1.52 USD

Annual Rate of Inflation in United States = 2.24 %

Annual Rate of Inflation in Great Britain = 3 %

Using Purchasing Power Parity

E(S1) / S0 = 1 + Inflation in US / 1+ Inflation in Britain

where E(S1) is the expected Spot rate after one year

S0 is the current spot rate

Therefore

E(S1) / 1.52 = 1 + 0.0224 / 1+ 0.03

E(S1) = (1.52 * 1.0224) / 1.03

E(S1) = 1.51 (rounded off to two decimals)

Thus US dollar per pound exchange rate in one year would be = 1.51

or This means 1 GBP is equivalent to 1.51 USD.


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