Question

8. What are the three attributes of the “ideal” currency and briefly describe the benefits of each?

9. Other things equal, and assuming efficient markets, if a Honda Accord costs $23,375 in the U.S. then - at an exchange rate of 6.46 Swedish krona per U.S. dollar - the Honda Accord should cost how much in Sweden?

Please show your work so I can learn how to solve the problem. Thank you so much.

Answer 1

Answer 8:

The three attributes are ideal currency:

1. Exchange rate stability: The currency should not be subject to volatility in exchange rates. Currency should have stability in terms of its value. A stable exchange rate assures investors of its future value.

2. Convertible: It should have wide convertibility. This helps in wide acceptability and full financial integration.

3. Monetary Independence: Ideal currency should be subject to an independent monetary policy. Non-interference from external influences brings credibility and investor confidence in the currency.  

Answer 9:

Honda Accord costs $23,375 in the U.S.

Exchange rate is 6.46 Swedish krona per U.S. dollar.

Assuming efficient markets, the cost of Honda Accord in Sweden should be = 23375 * 6.46 = 151,002.50 Swedish krona

The cost of Honda Accord in Sweden should be = 151,002.50 Swedish krona