Answer:
The pre-devaluation trade balance is -$880 while the post-devaluation trade balance is -$1,398.4.
Step-by-step Explanation:
Step 1: Value Assumptions
Assuming the following import/export volumes and prices:
Initial spot exchange rate ($/fc) Â Â Â Â Â Â Â Â Â Â 2
Price of exports, dollars                 20
Price of imports, foreign currency (fc) Â Â Â Â Â 12
Quantity of exports, units                100
Quantity of imports, units                120
Percentage devaluation of the dollar      18%
Price elasticity of demand, imports        -0.9
Step 2: Calculation of Pre-Devaluation Trade Balance
Revenue from exports = Quantity of exports x Price of exports
                   = 100 x $20
                   = $2,000
Expenditure on imports = Quantity of imports x Price of imports x Initial spot exchange rate
                    = 120 x $12 x 2
                    = $2,880
Pre-devaluation trade balance = Revenue from exports - Expenditure on imports
                         = $2,000 - $2,880
                         = -$880
Step 3: Calculation of Post-Devaluation Trade Balance
Revenue from exports = Quantity of exports x Price of exports
                   = 100 x $20
                   = $2,000
Expenditure on imports = Quantity of imports x Price of imports x New spot exchange rate
                    = 120 x $12 x 2(1.18)
                    = $3,398.4
Post-devaluation trade balance = Revenue from exports - Expenditure on imports
                          = $2,000 - $3,398.4
                          = -$1,398.4
