Chapter 19, Problem 7P

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Chapter
Section

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

CURRENCY APPRECIATION Suppose that 1 Danish krone could be purchased in the foreign exchange market today for 50.16. If the krone appreciated 4% tomorrow against the dollar, how many krones would a dollar buy tomorrow?

Summary Introduction

To determine: The exchange rate of Country U dollar in terms of krone.

Introduction:

Exchange rate is at which one currency of a country is exchanged with the currency of another country is termed as exchange rate.

Currency depreciation indicates the loss or negative change in the currency’s value in reference to any other currency. The change may be due to some factors such as change in government policies, and fluctuation in interest rates.

Explanation

Given information:

The exchange rate of 1 Danish krone in terms of Country U dollar is $0.16. The appreciation in krone in reference of Country U dollar is 4% or 0.04. Note: Calculate the appreciation in krone to compute the increased value (appreciated value) of krone. The formula to calculate the appreciation in krone with reference of Country U dollar: AppreciationĀ inĀ krone=ExchangeĀ rateĀ ofĀ kroneĆAppreciationĀ percentage The formula to calculate the exchange rate of Country U dollars in krone: ExchangeĀ rateĀ ofĀ CountryĀ UĀ dollarĀ inĀ krone=1ExchangeĀ rateĀ ofĀ kroneĀ inĀ CountryĀ UĀ dollar Compute the appreciation rate of krone: AppreciationĀ inĀ krone=$0.16Ć0

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