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 confusion with currency basics test 16-Mar-2011  anon
From the Currency Basics Test

-----Question5)-------
Assuming 7.8HKD = 1USD
If the HKD appreciated against the USD by 20%, how many HKD would you need to buy 1USD?

I'm confused, as there are 2 methods that should give the same answer but they dont.

method 1:

7.8*0.8 = 6.24HKD
assuming symmetry and that the USD depreciates 20% against the USD

method2:

((1/7.8)*1.2)^-1 = 6.5HKD
all im doing here is inverting the exchange rate!

why is the second method incorrect, according to the answers? And why is the answer to Question7, which is the exact same question, 6.5 and not 6.24? Which is the right method to use!!??


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