On May 5, 2023, you needed CHF 0.97 (Swiss Francs) to buy one US Dollar (USD). By May 4, 2024 the exchange rate was CHF 0.92 per USD. Based on this path of the exchange rate you conclude that the US Dollar
[ Select ]
depreciated
stay roughly constant
appreciated
against the Swiss Franc in the last 12 months.

Question

On May 5, 2023, you needed CHF 0.97 (Swiss Francs) to buy one US Dollar (USD). By May 4, 2024 the exchange rate was CHF 0.92 per USD. Based on this path of the exchange rate you conclude that the US Dollar 
[ Select ]
depreciated
stay roughly constant
appreciated
 against the Swiss Franc in the last 12 months.

BlackTom AI · Accepted Answer

We start by restating the scenario and the available choices.
- Statement to evaluate: From May 5, 2023 to May 4, 2024, the CHF per USD rate moved from 0.97 CHF per USD to 0.92 CHF per USD. Based on this path of the exchange rate, the US Dollar [Select] depreciated / stay roughly constant / appreciated against the Swiss Franc in the last 12 months.

Now, analyze each option:
- Option: depreciated
  Interpreting depreciated to mean the US Dollar has weakened relative to the Swiss Franc, one would expect that it now takes more CHF to buy one USD. However, the observed change is from 0.97 to 0.92 CHF per USD, meaning fewer Swiss francs are needed to buy one USD. This indicates the USD has strengthened, not weakened. Therefore, this option describes the opposite movement of what actually happened.
- Option: stay roughly constant
  Staying roughly constant would imply little to no change in the CHF per USD rate over the period. But the rate moved from 0.97 to 0.92, a noticeable change (about a 5% decrease in CHF per USD). This is not a near-constant movement; thus this option is inaccurate.
- Option: appreciated
  If the USD appreciates against the CHF, you need fewer CHF to buy one USD, which is exactly what happened when the rate fell from 0.97 to 0.92 CHF per USD. The direction of change shows stronger USD relative to CHF, consistent with appreciation.

A quick check of the logic: Price movement in terms of CHF per USD is a direct measure of the USD’s strength against the CHF. A drop from 0.97 to 0.92 means the USD has gained purchasing power in CHF terms, i.e., USD appreciated. Conversely, if the USD had depreciated, the CHF per USD rate would rise, requiring more CHF to buy one USD. The data therefore align with appreciation, not depreciation or stasis.

In summary, the correct interpretation is that the USD appreciated against the Swiss Franc over the period, because fewer Swiss francs are needed to buy one USD at the later date compared to the earlier date. The depreciated and stay constant options fail to match the observed movement in the exchange rate. The key idea here is interpreting currency strength via the direction of change in the quote USD/CHF: a lower CHF per USD quote signals dollar strength (appreciation) rather than weakness (depreciation).

FA25 ECON 302 002 Final Exam

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