If the British pound appreciates from $0.50 per pound to $0.75 per pound, the Canadian dollar depreciates from ________ per dollar to ________ per dollar.

Question

Quizplus · Accepted Answer

To find the answer, we need to use cross rates. Cross rates are exchange rates between two currencies where neither is the domestic currency. 
Initially, $1 = £0.50. Therefore, £1 = $2 (inverse of $0.50 per pound).
When the pound appreciates to $0.75 per pound, £1 would be worth $1.50.
Now, we need to find the new exchange rate between CAD and GBP. Let's assume initially, $1 = CAD x. Therefore, £1 = $2x. After the appreciation of the pound, £1 = $1.5x.
We can set the two equations equal to each other and solve for x:
$2x = $1.5x
x = 0.75
Therefore, initially $1 = CAD 0.75. But we need to find the new exchange rate for CAD with the pound:
If £1 = $1.5x = $1.5(0.75) = $1.125, then $1 = £0.89 (inverse of $1.125 per pound). 
So,  £2 = $2.25 and £1.33 is the equivalent of CAD 1.

If the British Pound Appreciates from $0