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Exchange Rate Changes

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Early in September 1983, it took 245 Japanese yen to equal $1. More than 20 years later that exchange rate had fallen to 108 yen to $1. Assume the price of a Japanese-manufactured automobile was $8,000 in September 1983 and that its price changes were in direct relation to exchange rates.
a. Has the price, in dollars, of automobile increased or decreased during the 20-year period because of changes in the exchange rate?
b. What would the dollar price of the car be, assuming the car's price changes only with exchange rates?

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Solution Summary

The solution considers the effect of Yen-dollar exchange rate changes on the dollar price of a car.

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Early in September 1983, it took 245 Japanese yen to equal $1. More than 20 years later that exchange rate had fallen to 108 yen to $1. Assume the price of a Japanese-manufactured automobile was $8,000 in September 1983 and that its price changes were in direct relation ...

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