If the C$ weakens by 2½% relative to the US$ (US$1.00 = C$1.0339), what will be the new value for the US$ per C$1.00?

Question

Quizplus · Accepted Answer

If the Canadian dollar weakens by 2.5% relative to the US dollar, it means the US dollar strengthens or buys more Canadian dollars. The original rate is US$1.00 = C$1.0339. To find the new value, we calculate 1.0339 * (1 - 0.025) = 1.0339 * 0.975 = US$1.0081 per C$1.00. However, the question asks for the value of US$ per C$1.00 after the weakening, which means we need to find the reciprocal of 1.0081. The reciprocal of 1.0081 is approximately 0.992, which is not listed among the options. Given the options provided and the nature of the calculation error in the explanation, the correct approach should involve understanding the percentage change in terms of the exchange rate directly, not through reciprocal calculation. The mistake here is in the interpretation of how the weakening affects the exchange rate directly. The correct calculation should directly adjust the exchange rate to reflect the weakening, but without the exact calculation leading to one of the provided options, the selection based on the initial explanation was incorrect. The correct approach involves directly adjusting the exchange rate to reflect the weakening or strengthening of the currency, which would directly affect the value of US$ per C$1.00, but without a clear calculation matching the options, the selection was incorrect.

If the C$ Weakens by 2½% Relative to the US