Answer:
The pre-devaluation cost is ($880) and the pst-devaluation trade balance is ($1398)
Explanation:
Assumptions Values
Initial spot exchange rate, $/fc $2.00
Price of exports, dollars ($) * 20.0000
Price of imports, foreign currency (fc) * 12.0000
Quantity of exports, units * 100
Quantity of imports, units * 120
Percentage devaluation of the dollar 18.00%
Price elasticity of demand, imports * (0.900)
a. The pre-devaluation trade balance--
Revenues from exports, $ $2,000
Expenditures on imports, fc * 1,440
Expenditures on imports, $ $2,880
Pre-devaluation trade balance ($880)
b. Resulting trade balance immediately after devaluation
Revenues from exports, $ $2,000
Expenditures on imports, fc * 1,440
New spot exchange rate, after devaluation $2.36
Expenditures on imports, $ $3,398
Post-devaluation trade balance (currency contract period) ($1,398)
