On May 5, 2023, you needed 7.1 (Turkish Lira) to buy one US Dollar (USD). By May 4, 2024 the exchange rate was 8.3 Turkish Lira per USD. Based on this path of the exchange rate you conclude that the US Dollar
[ Select ]
depreciated
stay roughly constant
appreciated
against the Turkish Lira in the last 12 months.

Question

On May 5, 2023, you needed 7.1 (Turkish Lira) to buy one US Dollar (USD). By May 4, 2024 the exchange rate was 8.3 Turkish Lira per USD. Based on this path of the exchange rate you conclude that the US Dollar 
[ Select ]
depreciated
stay roughly constant
appreciated
 against the Turkish Lira in the last 12 months.

BlackTom AI · Accepted Answer

We need to parse what the exchange rate movement means for the value of the US Dollar (USD) against the Turkish Lira (TRY).

- In May 2023, 1 USD cost 7.1 TRY. In May 2024, 1 USD costs 8.3 TRY. This means you need more Turkish Lira to buy one USD in 2024 than in 2023.

Option 1: depreciated. If the USD depreciated against the TRY, you would expect fewer TRY per USD over time, or the USD would buy fewer units of TRY. Since more TRY are required per USD, the USD has not depreciated; rather, the TRY has depreciated against the USD. So this option describes the opposite movement.

Option 2: stay roughly constant. A nearly unchanged exchange rate would imply similar TRY per USD across the period. Here there is a clear increase (7.1 vs 8.3), indicating a noticeable change, so this option is incorrect.

Option 3: appreciated. When the amount of local currency needed to buy 1 unit of foreign currency increases (TRY per USD goes from 7.1 to 8.3), the foreign currency (USD) has strengthened relative to the local currency. In other words, the USD has appreciated against the TRY in this period.

Option 4: (if present) would require evaluating, but with the observed data, any option indicating no change or the opposite direction would be inaccurate. The observed trend shows a strengthening of the USD relative to the TRY, not a weakening.

Overall, the movement indicates the value of the USD increased relative to the TRY over the 12-month period, which aligns with the concept that the USD appreciated against the Turkish Lira. The reasoning hinges on comparing how much TRY is needed to obtain 1 USD and recognizing that an increase in that amount signals the foreign currency's (USD) gain in value versus the local currency.

FA25 ECON 302 002 Final Exam

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