If we know the exchange rate between Country A’s currency and Country B’s currency, and we know the exchange rate between Country B’s currency and Country C’s currency, then we can compute the exchange rate between Country A’s currency and Country C’s currency. (Assume PPP holds.)
a ) Suppose the exchange rate between the Korean Won and the US dollar is currently “1,100 Won = $1” and the exchange rate between the British pound and the US dollar is “0.70 Pound = $1”. What is the exchange rate between the Won and the Pound?
b) Suppose that exchange rate between the Won and dollar changes to “1,000 Won = $1” and the exchange rate between the pound and dollar changes to “0.80 Pound = $1”. Has the dollar appreciated or depreciated against the won? Has the dollar appreciated or depreciated against the pound? Has the Won appreciated or depreciated against the pound.