Chapter 9, Problem 1SPA

To determine

Identify Country U’s dollar depreciate or appreciate against Country C’s dollar and Country U’s dollar appreciate or depreciate against the yen.

Explanation of Solution

Country U’s dollar exchange rate increased from $1.24 to 1.29 against Country C’s dollar that means the value of Country U’s dollar increases, which implies the appreciation of Country U’s dollar against Country C’s dollar.

Country U’s dollar exchange rate that decreased from 121 to 108 against the yen means the value of the dollar decreases, which implies the depreciation of Country U’s dollar against the yen.

Economics Concept Introduction

Appreciation of currency: The appreciation of currency refers to increase in the international value of the currency with respect to other currency in the exchange market, which causes increase in the value of a currency against the other currency.

Currency depreciation: The currency depreciation is the fall in the value of the domestic currency relative to the foreign currency, which in turn reduces the value of currency against the other currency.