Export contracts to be denoted in domestic currency

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Reference no: EM131164856

Assume that a country with a fixed exchange reate has an import of 100 per month and an export of 100 per month. Suddenly and unexpectedly the exchange rate is devaluated with 10 percent. Calculate the change on net export due to the devaluation if we assume import contracts to be denoted in foreign currency and export contracts to be denoted in domestic currency, for the following three time periods.

A. The first month after the devaluation, assume all imports and exports during thi month was contracted before the devauation but that the payments are made after the devaluation.

B. The third month after the devaluation, assume all imports and exports in this period is contracted after the devaluation and that the price elasticity of imports is 0.4 and the price elasticity of export is 0.4

C. the tenth month after the devaluation. Assume all imports and exports in this period is contracted after the devaluation and that the price elasticity of imports is 1.5 and the price elasticity of export is 2

Reference no: EM131164856

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