Florin and Guilder are two countries separated by a narrow sea. They use currencies called, respectively, the Flop and the Gulp.

Suppose the nominal exchange rate is 5 Flops per Gulp.

A Guilderian trader buys a 40 Flop barrel of Florish pickles by exchanging 8 Gulps, and a Florish trader buys a 10 Gulp crate of Guilderian apples by exchanging 50 Flops.

Then the Gulp depreciates to 2 Flops per Gulp.

a. How much must the Guilderian pay for the same 40 Flop barrel of pickles? (Gulps)

b. How much must the Florish trader pay for the same 10 Gulp crate of apples? (Flops)

Money in whatever form when in use or circulation as a means of trade, notably circulating banknotes and coins, is referred to as currency in the most specific meaning.

A currency, in a broader sense, is a system of money in widespread use, particularly among citizens of a country.

The answers are:

a. 20 Gulps  

b. 20 Flops

The pricing of 40 flop buckets of pickle will remain the same in Florin, but foreigners will pay 40/2 Gulps to adapt to the recent exchange rate of 2 flops each gulp. This is the equivalent of 20 Gulps.

The pricing of a 10 Gulp apple package will remain the same in Guilder. Only the foreigner (Floridian) will suffer the effect of the change currency rate of 2 Flops per Gulp when purchasing externally; the Floridian will pay 10 x 2 Flops. This is the same as 20 Flops.

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a. 20 Gulps

b. 20 Flops

Explanation:

The 40 flop barrels of pickles will still maintain its price in Florin

only the foreigner (Guilderian) will feel the impact for buying externally

with the new exchange rate of 2 Flops per Gulp, the Guilderian will pay 40/2 Gulps. This is equal to 20 Gulps

The 10 Gulp crate of apple will maintain its price in Guilder.

only the foreigner (Florish) will feel the impact for buying externally

with the new exchange rate of 2 Flops per Gulp, the Florish will pay 10 x 2 Flops. This is equal to 20 Flops

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