Suppose the Exchange Rate Has Changed from $US1

question 222

Multiple Choice

Suppose the exchange rate has changed from $US1.40 per British pound to $US2.00 per British pound. This means that the

• A) U.S. dollar depreciates from £0.71 per $US dollar to £0.50 per $U.S.
• B) British pound depreciates against the U.S. dollar.
• C) U.S. dollar can buy more British goods than before.
• D) U.S. dollar appreciates from £0.50 per dollar to £0.71 per dollar.

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Definitions:

Equity

The value of an ownership interest in a company, calculated as the company's assets minus its liabilities.

Debt

An amount of money borrowed by one party from another, usually with the condition of repayment with interest.

Put Contract

A financial contract granting the owner the privilege to sell a certain asset at a predetermined price during a set period.

Option Price

The amount paid for the option itself, representing the price to buy (call) or sell (put) an underlying asset by a specific date at a specified price.