Question

a) Given that the rupee depreciates by 89% against the dollar, calculate the implied appreciation

of the dollar against the rupee. [Ans. = 809%]

b) The US mortgage index declined sharply by 75% at the height of the recent great recession.

Compute the percentage increase in the index required to restore it to its previous peak. =300%

c) If the dollar appreciates by 750% against the peso, obtain the implied depreciation of the peso

against the dollar. [Ans. = -88.24%]

Answer 1

(a)

SUPPOSE 1$ = Rs.60 (V1) = VALUE TODAY

RUPEE DEPRECIATED BY 89%

VALUE AT THE END = V2

SO DEPRECIATION(%) = (VALUE IN THE BEGINNING - VALUE IN THE END)/ VALUE IN THE END*100

-89 = (60 - V2)/V2*100

-89 V2 = (60 - V2)*100

-89 V2 = 6000 - 100 V2

11 V2 = 6000

V2 = 545.45

SO IMPLIED APPRECIATION OF DOLLAR = (V2-V1)/V1*100 = (545.45 - 60)/60* 100 = 809.09% ANSWER

(b)

THE US MORTGAGE INDEX DECLINED BY 75%

SUPPOSE INDEX IN THE BEGINNING = I1 = 100

AFTER DECLINE, IT IS = 25 = I2

TO RESTORE ITS PEAK, % INCREASE = (100-25)/25*100 = 300% ANSWER

(c )

1 PESO = 0.05 PESO

APPRECIATION OF DOLLAR AGAINST EURO = (V2-V1)/V1*100

750 = (V2-0.05)/0.05*100

750*0.05/100 = V2 -0.05, THERFORE SOLVING V2 =0.425

IMPLIED DEPRECIATION OF PESO = (V1-V2)/V2*100 = (0.05-0.425)/0.425*100 = -88.24% ANSWER