Problem Set 10-2

FORUM

1. In February 2004 the US dollar - Mexican peso exchange rate was 11p/$. The price of a hotel room in Mexico City was 1000 pesos. The price of a hotel room in New York City was $200.

A) Calculate the price of the Mexican hotel room in US dollars

B) Calculate the price of the US hotel room in Mexican pesos.

Suppose the exchange rate rises to 12 pesos per $.

C) What does the exchange rate change indicate has happened to the value of the US dollar? ... to the value of the Mexican peso?

D) Does the currency change benefit the US tourist traveling to Mexico City or the Mexican tourist traveling to New York City? Explain why.