Question

If the exchange rate is 1 dollar \(=Y 129(\text { yen })\) and the price of a Japanese good is \(¥ 7,740,\) what is the equivalent dollar price?

Short answer

The equivalent dollar price for a Japanese good priced at ¥ 7,740 is approximately $60.

Step-by-step solution

Understand the given information

The given information tells us the conversion rate between yen and the dollar, which is 1 dollar equals 129 yen. Also, we know the price of the Japanese good in yen, which is ¥ 7,740.

Establish conversion equation

To find out the price of the good in dollars, we need to establish the following conversion equation: \(Dollars = \frac{Yen}{Conversion Rate}\) where the conversion rate is given as 129 yen/dollar.

Substitute the given Yen amount into the equation

Next, substitute the known value for yen, which is ¥ 7,740, into the established equation: \(Dollars = \frac{7,740 Yen}{129 \ yen/dollar}\)

Solve for the price in dollars

By dividing 7,740 by 129, we obtain the equivalent price in dollars.

Key concepts

Currency Conversion

Currency conversion is all about changing one currency into another. It's like swapping yen for dollars or vice versa. But, how do we know how much to swap? Well, that's where the exchange rate comes in. Think of the exchange rate as a bridge between two different currencies. In our exercise, the exchange rate is 1 dollar equals 129 yen. This means if you have 1 dollar, you can exchange it for 129 yen.

Here's how it works practically:

• Start with the given currency, such as yen.
• Use the exchange rate to "cross the bridge" to the other currency, like dollars.
• Divide the amount you have by the exchange rate for conversion.

So, if a good in Japan costs 7,740 yen, you use the given rate (129 yen per dollar) and divide the yen amount by 129 to find its equivalent in dollars. This process helps you understand how much a product costs in your own currency without any mental leaps.

Foreign Exchange

Foreign exchange is the backbone of international money transactions. It's a system that lets countries trade currencies with each other. Let's simplify this: every country has its own currency, and when they want to trade, they use the foreign exchange market.

Here's what happens in foreign exchange:

• Banks and institutions globally participate in exchanging currencies.
• The rates fluctuate based on demand and supply.
• These rates influence everything from the cost of goods to the value of investments.

In the exercise, we're using a fixed foreign exchange rate to understand how much a Japanese product costs in dollars. In a real-world scenario, these rates can change frequently due to economic factors, but for our example, the rate we use is 1 dollar equals 129 yen. Understanding foreign exchange helps in making informed decisions about buying international goods and services.

International Economics

International economics covers the big picture of how countries interact through trade, finance, and money policies. It's a broad field driving the interaction of different economies around the world. By understanding international economics, you get insight into how currency exchange affects global trade.

Key points in international economics include:

• Trade policies impacting currency values and vice-versa.
• How exchange rates influence import and export prices.
• The balance of payments that tracks a country’s financial outflows and inflows.

In our exercise, by converting the yen price of a product into dollars, we're engaging in a basic form of international economics. We see firsthand how exchange rates affect the cost of goods when crossing borders. This knowledge is crucial because exchange rates don't just impact consumers; they also influence businesses and economies at large, affecting global supply chains and trade relationships.