Suppose that Wanda the winetaster, an American, decides to buy a bottle of 1961(a very good year) Château Lafite Rothschild to complete her wine cellar. If the priceof the wine in France is 1,000 euros and the exchange rate is $1.18 to the euro,the wine will cost Wanda $1,180 ( ). Now suppose thatWanda delays her purchase by two months, at which time the euro has appreciatedto $1.40 per euro. If the domestic price of the bottle of Lafite Rothschildremains 1,000 euros, its dollar cost will have risen from $1,180 to $1,400.
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