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Chapter 18: Q. 17 (page 496)

A German sports car is selling for €65,000. What is the dollar price in the United States for the German car if the exchange rate is 0.80 euro per dollar?

Short Answer

Expert verified

The dollar price in the United States for the German car if the exchange rate is 0.80euro per dollar is 81,250.

Step by step solution

01

Given Information

Given in the question that, the cost of the car is €65,000euros

The exchange rate is0.80euro per dollar.

02

Explanation 

1 Dollar =0.80Euro

xDollar =65000Euros

Cross multiply the values:

x×0.80=1×65000

x=650000.80

x=81,250Dollar

03

Final Answer 

The dollar price in the United States for the German car if the exchange rate is 0.80euro per dollar is 81,250.

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Most popular questions from this chapter

If American auto companies make a breakthrough in automobile technology and are able to produce a car that gets 200 miles to the gallon, what will happen to the U.S. dollar exchange rate?

The New Zealand dollar to U.S. dollar exchange rate is 1.38, and the British pound to U.S. dollar exchange rate is 0.65. If you find that the British pound to New Zealand dollar is trading at 0.5, what would be the riskless profit per U.S. dollar invested?

Go to the website that contains the most recent calculations of the Economist’s Big Mac Index, http://www .economist.com/content/big-mac-index.

a. Plot the relationship between the local price of a Big Mac and the actual exchange rate. Does this plot suggest that there is a close relationship between the local price and the actual exchange rate? Does this suggest that the theory of PPP has some validity? Explain why.

b. Does your evidence above indicate that PPP is a good theory for exchange rates in the short run?

c. Which country’s currency is the most overvalued in terms of purchasing power parity? Is it expensive or cheap to shop there?

d. Which country’s currency is the most undervalued in terms of purchasing power parity? Is it expensive or cheap to shop there?

“A country is always worse off when its currency is weak (falls in value).” Is this statement true, false, or uncertain? Explain your answer.

In1999, the euro was trading at \(0.90per euro. If the euro is now trading at \)1.18per euro, what is the percentage change in the euro’s value? Is this an appreciation or depreciation?

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