In January 2002, the Argentine Peso changed in value from Peso 1.00/$ to Peso 1.40/$, what...

In January 2002, the Argentine Peso changed in value from Peso 1.00/$ to Peso 1.40/$, what is the percentage change in Argentine Peso against USD?

Expert Solution

Depreciation of currency occurs when the value of the currency falls relative to another currency.

Here, the value of Peso fell from Peso 1/$ to Peso 1.4/$. This means earlier only Peso 1 was sufficient to buy a dollar. Now, more Peso, that is 1.4 Pesos are required for the same. Thus, the value of Peso has depreciated or Peso has weakened against the dollar.

When exchange rate is written like Peso/$ then base currency is $ and price currnecy is Peso. This is because price of a dollar is mentioned in Peso terms. To calculate depreciation of Peso, the currency needs to be priced in terms of dollar.

A currency of the form Peso/$ can be converted into $/Peso by dividing it by 1.

Thus, currency has changed from 1/1 = $1/Peso to 1/1.40= $0.7142857/Peso.

Percentage depreciation is as under:

New value/Old value - 1 = 0.7142857/1 - 1

= -0.285714

Thus, Peso has depreciated by 28.57%.

Comment in case of any query.

jeff jeffy answered 1 year ago

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