If we know the exchange rate between Country A's currency and Country B^' s currency and we know

step 1 Okay, so we're given the exchange rate in this first scenario. Let's call this scenario A and th

If we know the exchange rate between Country A's currency...

If we know the exchange rate between Country A's currency and Country $\mathrm{B}^{\prime}$ s currency and we know the exchange rate between Country B's currency and Country C's currency, then we can compute the exchange rate between Country A's currency and Country C's currency. a. Suppose the exchange rate between the Japanese yen and the U.S. dollar is currently $¥ 95=\$ 1$ and the exchange rate between the British pound and the U.S. dollar is $£ 0.64=$ S1. What is the exchange rate between the yen and the pound? b. Suppose the exchange rate between the yen and the dollar changes to $¥ 100=\$ 1$ and the exchange rate between the pound and the dollar changes to $£ 0.55=$ S1. Has the dollar appreciated or depreciated against the yen? Has the dollar appreciated or depreciated against the pound? Has the yen appreciated or depreciated against the pound?

If we know the exchange rate between Country A's currency and Country $\mathrm{B}^{\prime}$ s currency and we know the exchange rate between Country B's currency and Country C's currency, then we can compute the exchange rate between Country A's currency and Country C's currency.
a. Suppose the exchange rate between the Japanese yen and the U.S. dollar is currently $¥ 95=\$ 1$ and the exchange rate between the British pound and the U.S. dollar is $£ 0.64=$ S1. What is the exchange rate between the yen and the pound?
b. Suppose the exchange rate between the yen and the dollar changes to $¥ 100=\$ 1$ and the exchange rate between the pound and the dollar changes to $£ 0.55=$ S1. Has the dollar appreciated or depreciated against the yen? Has the dollar appreciated or depreciated against the pound? Has the yen appreciated or depreciated against the pound?

Key Concepts

Appreciation and Depreciation

These terms refer to changes in the value of a currency relative to another. Appreciation occurs when a currency increases in value, enabling it to purchase more of another currency, while depreciation means its purchasing power decreases in comparison to the other currency.

Exchange Rate

An exchange rate is the value of one currency expressed in terms of another and acts as a conversion factor in transactions involving different currencies.

Cross Exchange Rate Calculation

This concept involves determining the exchange rate between two currencies by using their individual rates with respect to a common intermediary currency. The process often entails multiplying or dividing the known rates to derive the unknown rate.

Currency Conversion

Currency conversion is the process of exchanging one currency for another using the relevant exchange rate. It is fundamental in international finance, trade, and travel where different currencies are used.

Transcript

00:01 Okay, so we're given the exchange rate in this first scenario.

00:04 Let's call this scenario a and this one on the right scenario b.

00:08 All right, so in the first scenario, we're given the exchange rates of 95 yen to a dollar and 0 .64 pound to a dollar.

00:16 And the question is asking us, what's the exchange rate between yen and the pound? all right, so how we do this is, so since we know that each of the yen and the pound are both standardized to $1, we know that if 95 yen equals a dollar and 0 .64 pounds equal a dollar than 95 yen or actually let's write this the other way around then we know that 0 .64 pound is going to be equal to 95 yen.

00:42 Right and then if we divide both sides by 0 .64 we'll get how much one pound is equal in yen, right? so if we divide both sides by 0 .64, we'll get that one pound is equal to approximately 148 yen if we round.

00:56 So that's the exchange rate.

00:58 Now let's go over to scenario b.

00:59 So now the exchange rates have changed.

01:01 Right.

01:01 So we want to know if these things have depreciated or appreciated.

01:07 So essentially depreciated means that you can buy less with your money, right? your currency has decrease in value.

01:15 And appreciated means you can buy more with your money, right? your currency has increased in value.

01:21 All right.

01:21 So to solve these problems, let's first find the new exchange rate also from pounds.

01:26 To yen, right? so all we're going to do is divide, so if we say we have 0 .55 pounds is equal to 100 yen, and we divide both sides by 0 .55, we're going to get that 1 pound is equal to 182 yen.

01:43 All right...

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