1. On May 26, 2021 in the foreign exchange market, one euro was 1.23 U.S. dollar (e = 1.23$/). Exactly one year earlier on May 26, 2020 this exchange rate was e = 1.09$/. In that year,

a)the euro depreciated against the dollar by 14.0 percent.

b)the euro appreciated against the dollar by 14.0 percent.

c)the euro appreciated against the dollar by 12.8 percent.

d)the euro depreciated against the dollar by 12.8 percent.

e)the euro appreciated against the dollar by 11.4 percent.

f)the euro depreciated against the dollar by 11.4 percent.

2. In the situation described in Question 2, the price level in the U.S. economy had risen by 4.2 percent in the approximate period described in the question, while the corresponding figure for the Eurozone was 1.7 percent. Given this information, we can say that between May 26, 2020 and May 26, 2021, the real exchange rate of the euro, rounded to the whole percentage point, has appreciated against the dollar by

a)17 percent.

b)13 percent.

c)11 percent.

d)10 percent.

e)2 percent.

Real exchange rate = Nominal Exchange Rate x Domestic Price / Foreign Price

1.4.2% (U.S.) - 1.7% (Eurozone) = 2.5%

2.1.23 + (1.23 * 2.5%) = 1.26%

3.1.26 - 1.09 / 1.09 = 18.3%