Question

1. Assume the current market exchange rate between the US and the UK is 1.28 Dollars/1...

1. Assume the current market exchange rate between the US and the UK is 1.28 Dollars/1 Pound.

a. Graph the market for Pounds and show what would happen to the value of the Dollar if the US were to increase its imports of British products

b. At the initial Exchange rate of $1.28/£1, how much would a £130 sweater cost in Dollars? How much would a $300 iphone cost in Pounds?

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Answer #1

1. if the imports of British products increases then there will be rise in demand for British pound in US to repay for the purchases which in turn weaken the Dollar value and results in appreciation of British Pound

2. Price of Sweater in Dollars = Cost * Exchange Rate = 130 * 1.28 = $166.40

Price of iphone in Pounds = Cost / Exchange Rate = 300 / 1.28 = Pound 234.38

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