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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

CURRENCY APPRECIATION Suppose that 1 Danish krone could be purchased in the foreign exchange market today for $0 18. If the krone appreciated 10% tomorrow against the dollar, how many krones would a dollar buy tomorrow?

Summary Introduction

To determine:  The value of krones for buying a dollar after appreciation.

Currency Appreciation:

Currency appreciation is the increase in the foreign exchange value of a floating currency where the changes are caused by the market forces rather than by the government.

Explanation

Given,

Spot rate is $0.18.

DK appreciated by 10%.

Here, it is being given that DK has been appreciated therefore it is understood that it should be able to buy more dollar per DK than before.

Calculation for finding the value of DK would be needed to buy a dollar tomorrow is as follows:

The formula to calculate exchange rate is:

Exchange rate=Spot rate×(1+rate of appreciation)

Substitute $0

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