These seven questions cover the whole trade and exchange-rate reasoning cluster. Work each one on paper first, then open the answer. Use RM1 = B$0.20 unless a question says otherwise, where B$ is the dollar of Brelland, an invented country.
Questions
Question 1
A gadget is priced at B$350 in Brelland. Find its price in ringgit.
Answer
Each ringgit buys B$0.20, so divide the Brelland price by 0.20.
350 ÷ 0.20 = RM1 750.
Check: RM1 750 × 0.20 = B$350.
Question 2
A Malaysian tourist exchanges RM600 for Brelland dollars. How many dollars does she receive?
Answer
Multiply ringgit by the number of Brelland dollars per ringgit: 600 × 0.20 = B$120.
Direction check: each ringgit buys only 0.20 dollars, so the number of dollars must be smaller than 600.
Question 3
Sort each example as movement of goods, service, or financial flow, with a reason.
a) A Malaysian firm sends 200 crates of fruit to Brelland.
b) A Brelland fund buys bonds issued by a Malaysian company.
c) A Malaysian importer brings in a machine from Brelland.
d) A Brelland resident deposits savings with a Malaysian bank.
Answer
a) Movement of goods: a physical product leaves Malaysia.
b) Financial flow: the fund receives a claim on future payment and no product crosses the border.
c) Movement of goods: a machine enters Malaysia. The importer’s payment settles the sale and is not a separate example.
d) Financial flow: the depositor receives a claim on the bank’s money.
Question 4
The rate changes from RM1 = B$0.20 to RM1 = B$0.25. State whether the ringgit has appreciated or depreciated, and find the ringgit price of the B$350 gadget after the change.
Answer
Each ringgit now buys more Brelland dollars, so the ringgit has appreciated.
New price = 350 ÷ 0.25 = RM1 400. The price falls by RM350, since 1 750 − 1 400 = 350. That is 350 ÷ 1 750 = 20%.
Question 5
Write two ceteris paribus assumptions you need before saying that the ringgit’s appreciation in Question 4 caused the fall in the gadget’s price.
Answer
Two acceptable assumptions:
- The gadget’s price in Brelland dollars stays at B$350.
- Import duties and transport charges do not change.
A third, such as the quantity bought staying constant, would also be accepted. Without these, the price fall could come from a change other than the exchange rate.
Question 6
A Malaysian toy sells for RM800. A Brelland buyer pays in Brelland dollars. Compare the Brelland price at RM1 = B$0.20 and at RM1 = B$0.16, and explain what the change means for the toy’s exports. State one assumption and one limit.
Answer
At 0.20: 800 × 0.20 = B$160. At 0.16: 800 × 0.16 = B$128.
The price falls by B$32, which is 32 ÷ 160 = 20%.
A cheaper price in Brelland leads Brelland buyers to demand more toys, so exports may rise. Assumption: the ringgit price stays at RM800. Limit: if the factory cannot produce more, or buyers respond little to a price change, exports rise by less.
Question 7
A student writes: “The government should weaken the ringgit so that exports rise.” Rewrite this sentence as a mechanism evaluation in three short parts.
Answer
Assumption: the ringgit price of exports and Brelland buyers’ incomes stay constant.
Prediction: a weaker ringgit lowers the Brelland dollar price of Malaysian goods, so quantity demanded rises.
Limit and conclusion: exports rise by less if supply cannot expand. The conclusion is conditional: exports increase provided the assumptions hold. No recommendation about what the government should do appears in the answer.
If you got these wrong
Conversions gone the wrong way: go back to converting a quoted exchange rate in the correct direction.
Labels for flows: revisit distinguishing a movement of goods from a financial flow.
Missing assumptions or limits: read explaining an import-cost change and evaluating a textbook mechanism.
To practise under time, build a session with the timed practice builder. For guided help, see online one-to-one Economics tuition.