CFA CFA Level 1 Question of the Week – Economics

Question of the Week – Economics

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    • Avatar of AdaptPrepAdaptPrep
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        The exchange rate between two currencies has decreased to 101.34. The price currency has appreciated by 7.5 percent against the base currency. The initial exchange between the two currencies was closest to:

        • 94.27
        • 108.94
        • 109.56
      • Avatar of Jyoti_Singh02Jyoti_Singh02
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          i guess the answer would be =101.34/1.075= 94.27

          graskas voted up
        • Avatar of AdaptPrepAdaptPrep
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            The exchange rate decreased to
            101.34 units of the price currency per 1 unit of the base currency. For ease of
            explanation, let’s suppose this exchange rate is quoted in Japanese yen (¥) per
            United States dollar ($).

            A decrease of the yen-per-dollar
            exchange rate to 101.34 is equal to an increase in the dollar-per-yen exchange
            rate to 1/101.34 dollars per yen. We are told this exchange rate appreciated by
            7.5%.

            That means the exchange rate was
            (1/101.34) / 1.075 = 0.009179 dollars per yen, which is equivalent to 108.94 yen per dollars.

            Alternatively, because (1 / 1.075)
            – 1 = -6.98%, a 7.5% appreciation of the dollar-per-yen exchange rate is
            equivalent to a 6.98% depreciation of the yen-per-dollar exchange rate. If the
            exchange rate was X, that means X(1 – 6.98%) = 101.34. Solve for X = 108.94.

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