Question: In Munich, a bratwurst costs 5 euros; a hot dog costs $4 at Boston's Fenway Park. The euro/dollar exchange rate is $1.05/per euro (1 euro = $1.05 US).
a. What is the price of a bratwurst in terms of a hot dog?
b. All else equal, how does this relative price change if the dollar depreciates to $1.25 per euro?
c. Compared with the initial situation, has a hot dog become more or less expensive relative to a bratwurst?