If the C$ weakens by 2½% relative to the euro (C$1.00 = €0.7448), what will be the new value for the euro per C$1.00?

Question

Quizplus · Accepted Answer

The new value of the euro per C$1.00 after a 2½% weakening of the C$ relative to the euro can be calculated by reducing the initial value (€0.7448) by 2.5%. However, a weakening of the C$ means it will take more C$ to buy the same amount of euros, thus the value of euro per C$ will actually increase. The correct calculation should find the value that represents a 2.5% increase from the initial value, not a decrease. The only option that represents an increase from the initial value is €0.7262 per C$1.00. The mistake in the premise is assuming a weakening C$ would decrease the euro value per C$, when in fact, it increases it because you get more euros for every Canadian dollar.

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