4. In the Wall Street Journal , the British pound (£) is quoted for $1.67. The A
ID: 2761372 • Letter: 4
Question
4. In the Wall Street Journal, the British pound (£) is quoted for $1.67. The Australian dollar (A$) is quoted for $0.62. What is the value of the Australian dollar in terms of British pounds (1A$=?£)?
5. Given the following information: 1$=100¥ and 1¥=0.15 Peso, what is the exchange rate between $ and Peso?
6. Suppose you travel to China and find that a pair of NIKE AIR sneakers is selling at ¥560 (RMB) there. You know that the same style sneakers are selling in U.S. for $70. Based on purchasing power parity, what would the implied ¥/$ exchange rate be?
Explanation / Answer
Answer for question no.4:
One British pound =$1.67. pound/usd =1.67 therefore one USD=1/1.67 pounds =0.5988 pounds
One Australian dollar =$0.62 USD =Australian dollar/usd =0.62 therefore one USD =1/0.62 Australian dollar. =$1.6129
0.5988 pounds = 1.6129 Australian dollars.
Therefore, one Australian dollar =0.5988/1.6129 pounds
=0.3712 pounds.
Answer for question no.5:
Given one dollar =100 Yen
one yen = 0.15 peso
Exchange rate between dollar and peso = 100 *0.15 =15 peso
Therefore, one dollar = 15 peso.
Answer for question no.6:
Price of Nike in U.S. = $70.
Price in China =560 Yaun.
Formula is exchange rate = Price of the good in one currency/Price of the same good in the other currency.
Implied exchange rate = Price in chine/Price in U.S
=560 yaun/$70
=8 yauns/dollar
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