On August 8, 2000, Zimbabwe changed the value of the Zim dollar from Z$38/US$ to
ID: 1172830 • Letter: O
Question
On August 8, 2000, Zimbabwe changed the value of the Zim dollar from Z$38/US$ to Z$50/US$.
(1 marks)
(b) By what percent has the Zim dollar devalued (revalued) relative to the U.S. dollar?
(1.5 mark)
(c) By what percent has the US dollar appreciated (depreciated) relative to the Zim
dollar?
The answer is
(a) Before devaluation: $0.0263; after
devaluation: $0.02.
(b) -24%
(c) + 31.58%
Can you show me step by step?
What is the new US dollar value of the Zim dollar (US$/Z$ exchange rate)?
Explanation / Answer
Answer a) Remember one thing when answering exchange rate questions, the exchange rate is always expressed in relation to the currency in denominator. i.e. the currency in the denominator holds the value 1. In our case, Z$ 38 / 1 US $ .
So, if the rate is to be expressed as US$ / Z$ we need to find the reciprocal i.e 1/ 38 i.e = $ 0.026315
Similarly after devaluation, 1/50 = $ 0.02
b) As explained how a currency exchange rate is quoted, we can see in the question when it is asked to find Z$ devaluation relative to U$. This means USD should be in the denominator.
Thus Currency Devluation Percentage = (38-50)/50 = -24% . Z$ has depreciated 24% in relation to US$.
Formula, is (S1-S2)/S2.
US $ appreciation = (0.0263 - 0.02 ) / 0.02 = 31.5%
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