Suppose the pound devalues from $1.25 at the start of the year to $1.00 at the end of the year. Inflation during the year is 15% in England and 5% in the U.S. What is the real devaluation (-) or real revaluation (+) of the pound during the year?
a. - 12.38% b. - 20.71% c. + 2.39% d. + 1.46%
| +73 | Uchicago is paradise | 14 | 4d |
| +61 | BofA VP killed in random NYC stabbing | 36 | 2d |
| +53 | Who Killed Wall Street | 11 | 4m |
| +46 | What Bank Will Make Women Instantly Fall In Love With Me? | 14 | 2d |
| +14 | Western Investment Bankers Deserve No-Minimum-Wage Nannies, and I Want Mine NOW | 3 | 11h |
| +12 | At what salary can you start calling it “fi-NANCE” | 3 | 1d |
| +11 | Lindsay Clansey | 6 | 14h |
| +9 | Wrote a rap song on finance | 1 | 18h |
| +9 | IPTV 25: A Closer Look at Modern Streaming Options | 0 | 3h |
| +7 | Who is making these posts on WSO Linkedin ? | 5 | 4d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
if you're asking how, price it against a commodity to make it easier to solve mentally is how i'd approach it. Price the commodity with the same exchange rate at the start of the year, and then apply the devaluations.
I'm not a finance expert, and I only trade on technicals, but I'm going with A. The inflation in the US is extraneous info and the 20% appreciation of USD is offset by the inlfation to make the true appreciation about 12%
I actually had this on a macro exam a while back; answer is A
Answer=`A
Pound devalues 20% Inflation, which raises its value, is about 10% (15-5) 20-10=10% roughly… didn't do any calculations. But that's the method I use.
Thanks guys. Yes, the answer is A :)
= ( 1/1.25 (convert $1 into pound) * 1.15 (deposit in UK) / 1 (fx rate in 1 yr) ) / 1.05 (value of $1 deposited in US in 1 yr) - 1
= (0.92/1.05) - 1
I'd say this was pretty obvious. It's definitely an overall devaluation and it can't be by more than 20% because of the inflation, leaving only one possible answer.
Officia adipisci velit id. Culpa aut ut perspiciatis. Voluptate sapiente eveniet aliquam et maxime et modi illo. Quaerat dolores ullam magnam doloremque.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...