Part II Country Foreign Exchange Spot Rate (in dollars) (in units of foreign exchange) France 1 Euro = $1.25 $1 = 0.80 Euros Switzerland 1 SW Franc = $ .80 $1 = 1.25 SwF Spain 1 Euro = $1.25 $1 = 0.80 Euros England 1 pound = $1.85 $1 = 0.54054 Pound You just returned from a four nation European tour and are tallying your expenses. How much did the following activities cost in dollars? Foreign Exchange Value Dollar Value

5. Three meals at exclusive 300 Euros __answer sheet_____________ Parisian restaurants

6. Renting a Mercedes in 800 SwFrancs _____ answer sheet __________ Switzerland and motoring Through the Alps

7. Purchase of a leather coat 500 Euros _______ answer sheet _________ and jacket in Spain

8. Rail tour of England, Wales 130 pounds ____ answer sheet ____________ and Scotland

9. After Paris, you toured London. On Threadneedle Street you realized you still had 200 Euros in your wallet so you exchanged them for pounds at a local bank. How many pounds did you receive?

10. Your budget planning for the trip was to spend $3,000. At the time of your calculations six months before your trip, you estimated that at the then current exchange rate of 1 Euro = 1.00$ you would have about 3,000 Euros to spend. If you did convert and spend your $3,000 while abroad at current rates (from above chart), how much spending power did you lose from the time of planning to the actual trip? In Euros. _______ answer sheet _________________

11. Does your answer in #10 represent an appreciation or depreciation of the U.S. Dollar. ____ answer sheet ____________

12. What was the % change in the value of the U.S. Dollar in relation to the Euro between your planning phase and the actual trip in #10 indicate (+ or and amount) ____ answer sheet ________%.

13. When a U.S. tourists travels abroad, in terms of balance of trade accounts, (measured by the flow of dollars as payments or receipts for goods and services) is foreign travel by U.S. Citizens considered a U.S. Export or Import? ______ answer sheet __________

14.When the U.S. Dollar appreciates/depreciates (chose one-answer sheet), U.S. goods and service Exports become more/less (chose one- answer sheet ) expensive and U.S. Imports become more/less (chose one- answer sheet ) expensive. Assume for the moment that the exchange rate X is one U.S. dollar was equivalent to two British pounds. Suppose that British firms are willing to sell wool sweaters in the United States provided they receive 40 pounds per sweater in return. U.S. firms are willing to sell rollerblades in England as long as they receive $60 per pair in return. (Assume that shipping and handling costs are negligible).

15. Suppose that you wished to purchase an imported British wool sweater. At X exchange rates given above, how many U.S. dollars would this cost? _______ answer sheet _______________

16. How many British pounds would a citizen of Great Britain have to exchange for U.S. dollars in order to purchase American-made rollerblades? _____ answer sheet ________________ Suppose that events caused the exchange rate to change so that one U.S. dollar now was the equivalent to 1.5 British pounds. 17. Is this an example of the U.S. dollar appreciating or depreciating relative to the British pound? _____________ answer sheet ___________ 18. Looking at what your answers would be to questions

(17) and (18) using the new exchange rate, answer the following: U.S.-made products are now cheaper/more expensive (chose one- answer sheet) to British consumers. British products are now cheaper/more expensive (chose one- answer sheet) to U.S. consumers.

19. Which group would you expect to benefit more from this change in exchange rates (chose a or b and put answer on answer sheet: (a) U.S. rollerblade manufacturers and their workers that Export to England. (b) British sweater manufacturers and their workers that Export to U.S. 20. Explain: ______________ answer sheet ___________________________________