Question

An American company wants to buy a television from a Chinese company. The Chinese company sells its TVs for 1,200 yuan each. The current exchange rate between the U.S. dollar and the Chinese yuan is \(1 = 6 yuan. How many dollars will the American company have to convert into yuan to pay for the television?

a. \)7,200

b. \(1,200

c. \)200

d. $100

Short answer

The correct option is option c: $200.

Step-by-step solution

Exchange-rate system

There are two types of exchange rate systems, fixed exchange rate and floating exchange rate systems.

When demand and supply determine exchange rates without government intervention, it is a floating-exchange-rate system. It is also called a flexible exchange-rate system.

When the government sets the exchange rates for its currency and adjusts the monetary and fiscal policy to maintain this rate, it is called a fixed-exchange-rate system.

Computing the cost of TV 

The American company will have to convert 1200 yuan into dollars to pay for the television.

The current exchange between the US dollar and the Chinese Yuan is $1=6. The cost of the TV is 1200 Yuan. The American company will have to pay 1200/6 that is $200 for the television.

Hence, the correct option in the question is option “c”.