Question

Assume the United States has the following​ import/export volumes and prices. It undertakes a major​ "devaluation" of the​ dollar, say 20% on average against all major trading partner currencies- hence the dollar goes from a value of 2 $/fc to a value of 2.4390 $/fc.

Initial spot exchange rate, $/fc	2.00
Price of exports, dollars ($)	20.0000
Price of imports, foreign currency (fc)	12.0000
Quantity of exports, units	100
Quantity of imports, units	120
Percentage devaluation of the dollar	18.00

1. What is the​ pre-devaluation trade​ balance?

2. What is the post-devaluation trade balance?

Answer 1

Pre devaluation trade balance
	price	Qty	amt
Exports	20	100	2000	a
Imports	0.166	120	19.92	b		$/Fc	2
1/12
	Trade balance		1980.08	a-b		Fc/$	2/12
							0.166667
Post devaluation trade balance
$/FC		2
18% devaluation
$/FC		2.36
	price	Qty	amt
Exports	23.6	100	2360	a
						$/Fc	12
Imports	0.196667	12	2.36	b
1/12						Fc/$	1/12
	Trade balance		2357.64	a-b			0.196667
quantity demanded will be
	qty	elasticity	impact	amount
imports	120	-0.9	-108	12