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Suppose that on January 1 the exchange rate between the U. dollar and the European Union euro was $1.40 to buy one euro. On December 31 of that...
1. Suppose that on January 1 the exchange rate between the U.S. dollar and the European Union euro was $1.40 to buy one euro. On December 31 of that year, a person needed $1.45 to buy one euro. Over the course of that year, did the dollar appreciate or depreciate against the euro? For each of the following cases, identify whether the person is better or worse off and explain why.
a. An American college student spending a year abroad in Europe.
b. An American firm buying a German company.
c. A currency speculator who previously bought Euro with the expectation that it would appreciate.
d. An American firm that holds French bonds
e. A German bank with 20% of its reserves in US dollars.
