Question

An exchange rate between two currencies has increased to 1.4500. If the base currency has appreciated by 8% against the price currency, the initial exchange rate between the two currencies was closest to:

a. 1.3340
b. 1.3426
c. 1.5660
d. 1.4500

Answer 1

The initial exchange rate was approximately 1.3426 before the base currency appreciated by 8%.

Step-by-step explanation:

If the exchange rate between two currencies has increased to 1.4500, and the base currency has appreciated by 8% against the price currency, we can calculate the initial exchange rate. To find the original exchange rate before the appreciation, we divide the current rate by 1 plus the rate of appreciation (expressed as a decimal).

So, if the new exchange rate is 1.4500 after an 8% appreciation, the calculation would be: 1.4500 / 1.08, which gives us approximately 1.3426.

Therefore, the initial exchange rate between the two currencies was closest to option b, which is 1.3426.