Ask Question
12 April, 11:27

Assume the United States has the following import/export volumes and prices. It undertakes a major "devaluation" of the dollar, say 18% on average against all major trading partner currencies. What is the pre-devaluation and post-devaluation trade balance

+5
Answers (1)
  1. 12 April, 13:04
    0
    The pre-devaluation trade balance is - $880 while the post-devaluation trade balance is - $1,398.4.

    Step-by-step Explanation:

    Step 1: Value Assumptions

    Assuming the following import/export volumes and prices:

    Initial spot exchange rate ($/fc) 2

    Price of exports, dollars 20

    Price of imports, foreign currency (fc) 12

    Quantity of exports, units 100

    Quantity of imports, units 120

    Percentage devaluation of the dollar 18%

    Price elasticity of demand, imports - 0.9

    Step 2: Calculation of Pre-Devaluation Trade Balance

    Revenue from exports = Quantity of exports x Price of exports

    = 100 x $20

    = $2,000

    Expenditure on imports = Quantity of imports x Price of imports x Initial spot exchange rate

    = 120 x $12 x 2

    = $2,880

    Pre-devaluation trade balance = Revenue from exports - Expenditure on imports

    = $2,000 - $2,880

    = - $880

    Step 3: Calculation of Post-Devaluation Trade Balance

    Revenue from exports = Quantity of exports x Price of exports

    = 100 x $20

    = $2,000

    Expenditure on imports = Quantity of imports x Price of imports x New spot exchange rate

    = 120 x $12 x 2 (1.18)

    = $3,398.4

    Post-devaluation trade balance = Revenue from exports - Expenditure on imports

    = $2,000 - $3,398.4

    = - $1,398.4
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Assume the United States has the following import/export volumes and prices. It undertakes a major "devaluation" of the dollar, say 18% on ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers