Answer:
The pre-devaluation trade balance is -$880 while the post-devaluation trade balance is -$1,398.4.
Step-by-step Explanation:
Step 1: Value Assumptions
Assuming the following import/export volumes and prices:
Initial spot exchange rate ($/fc) 2
Price of exports, dollars 20
Price of imports, foreign currency (fc) 12
Quantity of exports, units 100
Quantity of imports, units 120
Percentage devaluation of the dollar 18%
Price elasticity of demand, imports -0.9
Step 2: Calculation of Pre-Devaluation Trade Balance
Revenue from exports = Quantity of exports x Price of exports
= 100 x $20
= $2,000
Expenditure on imports = Quantity of imports x Price of imports x Initial spot exchange rate
= 120 x $12 x 2
= $2,880
Pre-devaluation trade balance = Revenue from exports - Expenditure on imports
= $2,000 - $2,880
= -$880
Step 3: Calculation of Post-Devaluation Trade Balance
Revenue from exports = Quantity of exports x Price of exports
= 100 x $20
= $2,000
Expenditure on imports = Quantity of imports x Price of imports x New spot exchange rate
= 120 x $12 x 2(1.18)
= $3,398.4
Post-devaluation trade balance = Revenue from exports - Expenditure on imports
= $2,000 - $3,398.4
= -$1,398.4
