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Chapter 8

Q. 8.MSE.5

Assume that the Polish currency (called zloty) is worth $.32. The U.S. dollar is worth .7 euros. A U.S. dollar can be exchanged for 8 Mexican pesos.
Last year a dollar was valued at 2.9 Polish zloty, and the peso was valued at $.10.
a. Would U.S. exporters to Mexico that accept pesos as payment be favorably or unfavorably affected by the change in the Mexican peso’s value over the last year?
b. Would U.S. importers from Poland that pay for imports in zloty be favorably or unfavorably affected by the change in the zloty’s value over the last year?
c. What is the percentage change in the cross exchange rate of the peso in zloty over the last year? How would firms in Mexico that sell products to Poland denominated in zloty be affected by the change in the cross exchange rate?

Step-by-Step

Verified Solution

a. The peso is valued at $.125 today. Since the peso appreciated, the U.S. exporters are favorably affected.
b. The zloty was worth about $.345 last year. Since the zloty depreciated, the U.S. importers were favorably affected.
c. Last year, the cross rate of the peso in zloty = $.10/$.345 = .2898. Today, the cross rate of the peso in zloty = $.125/$.32 = .391. The percentage change is (.391 – .2898)/.2898 = 34.92%.