Question

Assume the United States has the following import/export volumes and prices. It undertakes a major devaluation of the dollar by 18% against all major trading partners’ currencies. What is the pre devaluation and post devaluation trade balance? Assumptions values Initial spot exchange rate $/FC 2.00 Price of export, dollars ($) 20,000 Price of imports, foreign currency (FC) 12,000 Quantity of exports, Units 100 Quantity of imports, units 120 Percentage devaluation of the dollar 18% Price elasticity of demand, imports (0.90)

Answer 1

A	Initial Spot Exchange	2
B	Price of export dollars per unit	20
C	Price of imports in forrign currency per unit	12
D	Qty of exports	100
E	Qty of Imports	120
F	Devaluation of dollar	18%
G	Price Elasticity of demand	-0.9
H	$ after devaluation (A*F)+A	2.36
I	% change in demand of imports (F*G)	-16.20%
J	New import Units( E *(100%-I)	100.800
	Pre devaluation Trade Balance
	Value of exports in $ less value of Imports in$
	(20*100)-(120*12*2)
	2000-2880
	-880
	Post devaluation Trade Balance
	Value of exports less value of imports after devaluation
	2000-(100.80*2.36*12)
	-854.656