Question

Suppose that 40 Russian rubles exchange for $1 U.S., and 60 Russian rubles exchange for 1...

  • Suppose that 40 Russian rubles exchange for $1 U.S., and 60 Russian rubles exchange for 1 euro. Then Russian demand for U.S. manufactured products increases, and Russian demand for euro-zone manufactured products declines.
  • Which currency appreciates against the ruble, and which currency depreciates against the ruble?
  • How does the exchange rate of the dollar for the euro change in this scenario?
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Answer #1

Answer : 1) Here the Russian demand decreases for euro-zone manufactured products. This means that Euro appreciates against Ruble.

Here the demand increases for U.S. manufactured products. This means that Dollar depreciates against Ruble.

2) 40 Russian ruble = $1

60 Russian rubble = 1 Euro

=> 1 Russian ruble = 1/60 Euro

=> 40 Russian ruble = (1/60) * 40 = 0.67 Euro

This means that 40 Russian rubble = $1 = 0.67 Euro.

So, here the exchange rate of dollar for euro is, $1 = 0.67 euro.

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