Problem 17-10 Results of Exchange Rate Changes In 1983 the Japanese yen-U.S. dol
ID: 2727616 • Letter: P
Question
Problem 17-10
Results of Exchange Rate Changes
In 1983 the Japanese yen-U.S. dollar exchange rate was 255 yen per dollar, and the dollar cost of a compact Japanese-manufactured car was $11,000. Suppose that now the exchange rate is 121 yen per dollar. Assume there has been no inflation in the yen cost of an automobile so that all price changes are due to exchange rate changes.
Has the price (in dollars) of the automobile increased or decreased since 1983 because of changes in the exchange rate?
-Select-IIIIIIIVVItem 1
I. The automobile's value has decreased because the dollar has declined in value relative to the yen.
II. The automobile's value has increased because the dollar has increased in value relative to the yen.
III. The automobile's value has decreased because the dollar has increased in value relative to the yen.
IV. The automobile's value has no relation to the relative value of the dollar and the yen.
V. The automobile's value has increased because the dollar has declined in value relative to the yen.
What would the dollar price of the car be, assuming the car's price changes only with exchange rates? Round your answer to the nearest dollar.
$
Explanation / Answer
Calculation of Change in Price ($) of the car due to change in exchange rates:
Dollar cost of Car in 1983 =
$
11,000
Exchange rate in 1983 ( Yen per dollar) =
Yen
255
Yen cost of Car in 1983 = 11000 * 255 =
Yen
2,805,000
Yen cost of Car now (Assuming no inflation)
Yen
2,805,000
Exchange rate now ( Yen per dollar) =
Yen
121
Dollar cost of Car now = 2805000 / 121 =
$
23,182
Hence the cost has increase from $11,000 to $23181.82, the reason is decline in the value of dollar against Yen.
Ans-1:
The correct answer shall be :
V. The automobile's value has increased because the dollar has declined in value relative to the yen.
Ans-2:
Dollar cost of Car now =
$
23,182
Calculation of Change in Price ($) of the car due to change in exchange rates:
Dollar cost of Car in 1983 =
$
11,000
Exchange rate in 1983 ( Yen per dollar) =
Yen
255
Yen cost of Car in 1983 = 11000 * 255 =
Yen
2,805,000
Yen cost of Car now (Assuming no inflation)
Yen
2,805,000
Exchange rate now ( Yen per dollar) =
Yen
121
Dollar cost of Car now = 2805000 / 121 =
$
23,182
Hence the cost has increase from $11,000 to $23181.82, the reason is decline in the value of dollar against Yen.
Ans-1:
The correct answer shall be :
V. The automobile's value has increased because the dollar has declined in value relative to the yen.
Ans-2:
Dollar cost of Car now =
$
23,182