International Economics 10th Edition by Paul Krugman,Maurice Obstfeld ,Marc Melitz

Exercise 1

In Munich, a bratwurst costs 5 euros; a hot dog costs $4 at Boston's Fenway Park. At an exchange rate of $1.05/per euro, what is the price of a bratwurst in terms of a hot dog? All else equal, how does this relative price change if the dollar depreciates to $1.25 per euro? Compared with the initial situation, has a hot dog become more or less expensive relative to a bratwurst?