Answer the following questions

Is it better if the U.S. dollar rises in value—or if the U.S. dollar falls in value against other countries’ currencies? The question is important because a government can intervene to raise or lower value of currency (Remember from Macro?) relative to other currencies. However, such interventions are controversial, it creates “consequences”. We often point figures at China for manipulating their currency (mainly keeping it low to help exports).

The answer to the question above is “Depends. Some will benefit and some will lose”. Of the list of groups mentioned below, who would potentially gain and who would potentially lose if USD value gets stronger against their currencies or Euro? Explain each answer to get full credits. (1 point each – 6 points total)

1) Henri, the French man exporting wine to the U.S.

2) Firms exporting computers from the U.S. to Belgium.

3) German students studying in US

4) American consumers

5) An Italian textile firm about to build a factory in South Carolina

6) I am in EU countries for a vacation

Now, let’s play with numbers to explain the concepts above.

8) Yesterday, 1 Euro was worth $1.22. What is the euro price of a dollar? (In other words, $1 USD is worth how much Euro?) 1 point

9) iPhone XS Max costs $1,449 USD. How much the phone will cost in following countries’ currencies based on the conversion rates given below? (1 point each x 5 = 5 points total)

Country

Currency

Conversion Rate

CANADA (?)

DOLLAR (CAD)

1 CAD = 0.787464 USD

CHINA (?)

YUAN (CNY)

1 CNY = 0.1593245 USD

GREAT BRITAIN (?)

POUND (GBP)

1 GBP = 1.3631 USD

JAPAN (?)

YEN (JPY)

1 JPY = 0.0094313 USD

MEXICO (?)

PESO (MXN)

1 MXN = 0.056506 USD

10) If the USD (value) appreciates against the above foreign currencies, will that make the iPhone more expensive or cheaper for them to buy? 1 point

11) If a PlayStation 4 costs 30,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is (2 points each x 3 = 6 points total)

(a) 110 yen = $1?

(b) 1 yen = $0.009?

(c) 100 yen = $1?

12) As you can see from your answers above, the cost of the PS4 didn’t change BUT your price to buy the PS4 changed just because the foreign exchange rate between the two countries changed. When you compare the prices between a and c, did it get cheaper or more expensive? 1 point


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