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Dollar versus the Euro

· On Friday, the New York foreign currency market closed with a quote of $1.0900 / Euro. To stimulate economic activity the Federal Reserve hints that interest rates will be lowered by 50 basis points (½ of 1%). At the close of business on Monday, reacting to speculation that the Fed will lower interest rates, the New York currency market closed with a quote of 1.1250 $ / Euro. Has the US dollar ($) appreciated or depreciated against the Euro? How can you explain your answer?

· Given the following exchange rates: $US 1.6022 / £ and ¥ 121.95 / $US, how many Japanese yen (¥) are needed to purchase 1 pound sterling (£)?

· For each of the following direct foreign exchange quotes calculate the equivalent
Indirect quote (round off your answer using four decimal places):

â?¬ 0.00776 / Yen

$0.2723 / Dirham

$0.0212 / Rupee

$1.6037 / British Pound

â?¬ 1.4614 / British Pound

Solution Preview

· On Friday, the New York foreign currency market closed with a quote of $1.0900 / Euro. To stimulate economic activity the Federal Reserve hints that interest rates will be lowered by 50 basis points (½ of 1%). At the close of business on Monday, reacting to speculation that the Fed will lower interest rates, the New York currency market closed with a quote of 1.1250 $ / Euro. Has the US ...

Solution Summary

as the US dollar ($) appreciated or depreciated against the Euro? How can you explain your answer?

$2.19