Early in September 1983, it took 245 Japanese yen to equal $1. More than 20 year
ID: 2671188 • Letter: E
Question
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 the 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 cars price changes only with exchange rates?
Explanation / Answer
a. Has the price, in dollars, of the automobile increased or decreased during the 20-year period because of changes in the exchange rate? The price in dollars of the automobile increased during the 20-year period because of the changes in the exchange rate. This is because the dollar value has depreciated against Yen during the 20 years period. b. What would the dollar price of the car be, assuming the car’s price changes only with exchange rates? Sep 1983: $1 = 245 Japanese Yen Therefore, $8,000 = 245 x 8000 = 1,960,000 Yen 20 years later: 108 Yen = $1 Therefore, 1,960,000 Yen = 1/108 x1,960,000-> $18,148.15
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