Question

Value of the foreign exchange (3/10/2020)	1.00 USD	One unit of the exchange in USD	Value of the foreign exchange (5/9/2020)	1.00 USD	One unit of the exchange in USD
British Pound	0.77162	1.29597	British Pound	0.806035	1.24064

MULTIPLE CHOICE (from a to c) WITH THE INFORMATION SHOWN ABOVE

A. Has your currency appreciated or depreciated against the dollar between March 10 and May 9, 2020? Choose from the answers above:

a. It has depreciated
b. It has stayed the same, has not changed in value
c. I have no idea
d. Other:

B. The Mushroom Kingdom currency, called Coin, has appreciated against the dollar in this period. Based on this information and your answer to the previous question, what should have happened with your currency regarding the Mushroom Kingdom Coin? Choose from the answers above:

a. Your currency must necessarily have appreciated against the Mushroom Kingdom Coin
b. Your currency must necessarily have depreciated against the Mushroom Kingdom Coin
c. We do not have enough information, it may have been appreciated, but it may also have depreciated
d. Other:

C. If interest rates in the United States rise and all other factors (inflation, interest rates in other countries, etc.) remain the same, will your currency appreciate or depreciate against the dollar? Choose from the answers above:

a. Will be appreciated
b. Will depreciate
c. Other:

D. Explain your answer to the previous question

E. Blue wants to expand its exports and since March 10 has been negotiating with beverage distributors in the country that has your currency. Is the evolution observed in the exchange rate in the last two months convenient or detrimental to Serrallés? (Note that his objective is to sell as many bottles as possible and that he always sells in dollars, he does not accept payments in another currency). Explain your answer

F. Imagine that tomorrow they will reach an agreement. However, in Blue they have a concern: they have never worked with this client, and sending the bottles before receiving payment is risky, but the client does not want to pay until they receive the order and verify that it is OK. What can they do?

Answer 1

We can only answer 4 parts in a question. Kindly ask other parts in a separate question.

a. Currency depreciation means the loss in value of the currency relative to other currency. We can see that on March 10, we were able to buy $1 with only 0.77162 British Pounds. However, on May 9th we had to pay 0.806035 for $1. Thus, we had to pay more indicating that our currency has depreciated with respect to dollar in this time period.

a is correct as its value has decreased relatively. We need to pay more now.

b is wrong as it has not stayed the same. The values have changed

c. is wrong as we have idea

d. is irrelevant

Thus, the asnwer is (a) depreciated

b.

a. is wrong as our currency has depreciated with respect to even dollar, and coin has appreciated vis-a-vis the dollar.

b. is correct. Our currency British Pound has depreciated against Dollar and Coin has appreciated against dollar. Our currency must necessarily have depreciated against the Mushroom Kingdom Coin

c is wrong as had the Coin also depreciated, then we would not have been able to say whether our currency has appreciated or depreciated.

d is wrong as it is irrelevant

Thus, the answer is b. Your currency must necessarily have depreciated against the Mushroom Kingdom Coin

c. When interest rates rise in US, then it will increase the demand of US dollars in foreign countries and decrease the supply, causing the dollar to appreciate.

a. is wrong as dollar appreciates, your currency depreciates

b. is correct. Higher interest rates attract foreign investors as higher interest rates can be earned. This increases demand for dollars and it appreciates. Therefore, our currency depreciates.

c. is wrong as b is correct.

Thus, the answer is b. Our currency depreciates.

d. The rate of interest affects the currency. Higher interest rates increase the demand for currency in foreign markets and as demand increases supply relatively falls, causing dollar to rise. As dollar relatively appreciates it means our currency depreciates relatively.

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