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Table 1.3 gives the foreign exchange rates for seven industrialized countries for years 1977-1998. Except for the United Kingdom, the exchange rate is de?ned as the units of foreign currency for one U.S. dollar; for the United Kingdom, it is de?ned as the number of U.S. dollars for one U.K. pound.

a. Plot these exchange rates against time and comment on the general behavior of the exchange rates over the given time period.

b. The dollar is said to appreciate if it can buy more units of a foreign currency. Contrarily, it is said to depreciate if it buys fewer units of a foreign currency. Over the time period 1977-1998, what has been the general behavior of the U.S. dollar? Incidentally, look up any textbook on macroeconomics or international economics to ?nd out what factors determine the appreciation or depreciation of a currency.

TABLE 1.3     EXCHANGE RATES FOR SEVEN COUNTRIES: 1977-1998

Year

Canada

France

Germany

Japan

Sweden

Switzerland

U.K.

1977

1.063300

4.916100

2.323600

268.6200

4.480200

2.406500

1.744900

1978

1.140500

4.509100

2.009700

210.3900

4.520700

1.790700

1.918400

1979

1.171300

4.256700

1.834300

219.0200

4.289300

1.664400

2.122400

1980

1.169300

4.225100

1.817500

226.6300

4.231000

1.677200

2.324600

1981

1.199000

5.439700

2.263200

220.6300

5.066000

1.967500

2.024300

1982

1.234400

6.579400

2.428100

249.0600

6.283900

2.032700

1.748000

1983

1.232500

7.620400

2.553900

237.5500

7.671800

2.100700

1.515900

1984

1.295200

8.735600

2.845500

237.4600

8.270800

2.350000

1.336800

1985

1.365900

8.980000

2.942000

238.4700

8.603200

2.455200

1.297400

1986

1.389600

6.925700

2.170500

168.3500

7.127300

1.797900

1.467700

1987

1.325900

6.012200

1.798100

144.6000

6.346900

1.491800

1.639800

1988

1.230600

5.959500

1.757000

128.1700

6.137000

1.464300

1.781300

1989

1.184200

6.380200

1.880800

138.0700

6.455900

1.636900

1.638200

1990

1.166800

5.446700

1.616600

145.0000

5.923100

1.390100

1.784100

1991

1.146000

5.646800

1.661000

134.5900

6.052100

1.435600

1.767400

1992

1.208500

5.293500

1.561800

126.7800

5.825800

1.406400

1.766300

1993

1.290200

5.666900

1.654500

111.0800

7.795600

1.478100

1.501600

1994

1.366400

5.545900

1.621600

102.1800

7.716100

1.366700

1.531900

1995

1.372500

4.986400

1.432100

93.96000

7.140600

1.181200

1.578500

1996

1.363800

5.115800

1.504900

108.7800

6.708200

1.236100

1.560700

1997

1.384900

5.839300

1.734800

121.0600

7.644600

1.451400

1.637600

1998

1.483600

5.899500

1.759700

130.9900

7.952200

1.450600

1.657300

Source: Economic Report of the President, January 2000 and January 2001.

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