If the spot exchange rate between marks and Dollars is DM1.5/$ before the Dollar depreciates by 10%, how many Dollars will it now take a U.S.payer to remit an invoice of DM500?
A)$366.67
B)$370.37
C)$750.00
D)$825.00

Question

Quizplus · Accepted Answer

Before the Dollar depreciated by 10%, 1 Dollar could buy 1.5 DM. Therefore, to convert DM500 to dollars:

DM500/1.5 = $333.33

However, since the Dollar depreciated by 10%, it means that now 1 Dollar can buy only 1.35 DM (0.9 x 1.5). To compute how many dollars are needed to pay DM500 at the new exchange rate:

DM500/1.35 = $370.37

Therefore, the answer is B.

If the Spot Exchange Rate Between Marks and Dollars Is