Problem 2.2 Peso exchange rate change
In December 1994 the government of Mexico officially changed the value of
the Mexican peso from 3.2 pesos per dollar to 5.5 pesos per dollar. Was this
a depreciation, devaluation, appreciation, or revaluation? Explain.
Calculation of Percentage Change in Value Values
Initial exchange rate (peso/$) 3.20
Devalued exchange rate (peso/$) 5.50
Percentage change in peso value -41.82%
(beginning rate - ending rate) / (ending rate)
Anytime a government sets or resets the value of its currency, it is a
managed or fixed exchange rate. If that is the case, any change in its official
value must be either a "revaluation" or "devaluation." In this case, a
devaluation. This is evident from the fact that it now takes more pesos per
U.S. dollar, so its value is less or devalued. In terms of the percentage
change calculation, this is indicated by the negative percentage change.
Problem 2.10 Saudi import
A European-based manufacturer ships a machine tool to a buyer in Jordan. The purchase price is
€375,000. Jordan imposes a 12% import duty on all products purchased from the European Union.
The Jordanian importer then re-exports the product to a Saudi Arabian importer, but only after
imposing their own resale fee of 22%. Given the following spot exchange rates on May 24, 2004,
what is the total cost to the Saudi Arabian importer in Saudi Arabian riyal, and what is the U.S.
dollar equivalent of that price?
Purchase price, in euros (€) € 375,000
Spot rate of exchange, Jordanian dinar per euro (JD/€) 0.8700
Spot rate of exchange, Jordanian dinar per dollar (JD/$) 0.7080
Spot rate of exchange, Saudi Arabian riyal per Jordanian dinar (SRI/JD) 5.2966
Jordanian import duty on EU products 12.00%
Jordanian resale fees 22.00%
Spot rate of exchange, Saudi Arabian riyal (SRI/$) 3.750
What is the dollar price after all exchanges and fees?
Purchase price, converted to Jordanian dinar (JD) 326,250.00
Additional fees due on importation 39,150.00
Total cost, Jordanian dinar (JD) 365,400.00
Resale fee in Jordan 80,388.00
Resale price to Saudi Arabian, in JD 445,788.00
Price paid in Iraqi dinar, converting JD to SRI 2,361,165.25
(spot rate (SRI/JD) x Resale price to Saudi Arabian (JD) )
US dollar equivalent of final price paid $ 629,644.07