The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Assume an Australian importer expects to pay 16,000 Australian dollars (AUD) for $8,000 worth of U.S. goods, but on the shipment date 30 days later, the same volume of U.S. goods costs the Australian importer only 10,000 Australian dollars. This means that between the contract date and the payment date, the exchange rate has changed:
A)from $1 = 1.25 AUD to $1 = 2.0 AUD.
B)from $1 = 2.0 AUD to $1 = 1.25 AUD.
C)from $1 = 0.8 AUD to $1 = 0.5 AUD.
D)from $1 = 0.5 AUD to $1 = 0.8 AUD.
E)from $1 = 0.5 AUD to $1 = 2.0 AUD.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Assume an Australian importer expects to pay 16,000 Australian dollars (AUD) for $8,000 worth of U.S. goods, but on the shipment date 30 days later, the same volume of U.S. goods costs the Australian importer only 10,000 Australian dollars. This means that between the contract date and the payment date, the exchange rate has changed:
A)from $1 = 1.25 AUD to $1 = 2.0 AUD. 
B)from $1 = 2.0 AUD to $1 = 1.25 AUD. 
C)from $1 = 0.8 AUD to $1 = 0.5 AUD. 
D)from $1 = 0.5 AUD to $1 = 0.8 AUD. 
E)from $1 = 0.5 AUD to $1 = 2.0 AUD.

Quizplus · Accepted Answer

Since the Australian importer expected to pay 16,000 AUD for $8,000, the original exchange rate was 2.00 AUD per $1. However, when the payment date arrived, the same volume of U.S. goods only cost 10,000 AUD, which means that the Australian dollar became stronger relative to the U.S. dollar. Therefore, the exchange rate changed from $1 = 2.0 AUD to $1 = 1.25 AUD, making option B the correct choice.

The Figure Given Below Depicts the Foreign Exchange Market for British