1. Suppose that the current exchange rate of British pounds for $ is 2£ to 1$. S

ID: 1211584 • Letter: 1

Question

1. Suppose that the current exchange rate of British pounds for $ is 2£ to 1$. Suppose that the rate was 2.5£ to 1$ last week.

Has the $ appreciated or depreciated with respect to pounds?

How much was a $30 pair of jeans in pounds last week? This week?

How much was a 40£ purse in $ last week? This week?

Dollar has depreciated because it takes fewer pounds to buy one.
It takes 60£to buy a pair of jeans this week, whereas last week it took 75£.

Therefore, our goods have become cheaper. They don't have to spend as many

pounds.
It takes $20 to buy the purse this week, whereas last week it took $16.

Therefore, their goods have become more expensive. We have to spend more

dollars.

(1) Dollar has depreciated becuase earlier you could buy 1$ for 2.5£ and now you have to pay only 2£

(2) Jeans : last week = 75£, this week = 60£ - spend less pounds

(3) Purse : last week = 16$, this week = 20$ - spend more dollars

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