Question

The set up: The nominal exchange rate is the rate at which a person can trade the currency of one country for the currency of another. Required: Using internet sources create a list of nominal exchange rates between 2 different countries and the United States. Explain briefly how the nominal exchange rate would affect your travel abroad to each country.

Answer 1

USD and INR(Indian Rupee) = 1$ = 65 INR

USD and British Pound = 1 Pound = $1.40

In the first case, a depreciation in the value of rupee will be beneficial for the US citizen because, for the same value of a dollar, an American can now avail more services/commodities in India. For example, if a mobile phone in India costs 6500 Rs. For this, an American will have to pay $100 at the current exchange rate. Now if this exchange rate changes to 1USD = Rs 66, then the American will only have to shed only $98.5 for the same mobile phone.

Similarly, if the American Dollar appreciates against the British pound, the American citizen will have to pay lesser a lesser American Dollars to avail the same value services/commodities.