Let S be the USD/GBP exchange rate, P∗ be the pound cost of a consumption basket in the U.K., and P be the dollar cost of a consumption basket in the U.S. Using the units of S, P∗, and P, find the units of the real exchange rate, Q = SP∗/P
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Let S be the USD/GBP exchange rate, P∗ be the pound cost of a consumption basket in the U.K., and P be the dollar cost of a consumption basket in the U.S. Using the units of S, P∗, and P, find the units of the real exchange rate, Q = SP∗/P
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- Let S be the USD/GBP exchange rate, P∗ be the pound cost of a consumption basket in the U.K., and P be the dollar cost of a consumption basket in the U.S. Using the units of S, P∗, and P, find the units of the real exchange rate, Q = S (P∗/P).In mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros (the monetary unit in the European Union). If a U.S. dollar bought 0.55 pound sterling in 2006, what was the exchange rate between the U.S. dollar and the euro?What is the current (within the last 48 hours) exchange rate between the U.S. dollar and the Chinese Yuan?
- Using data from The Economist's Big Mac index for 2011, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: NOTE: here are the options for drop down questions for when u get there The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Brazil (that is, the PPP exchange rate for Big Macs) is __________ ($0.43 per real OR $1.96 per deal OR $2.33 per real OR $2.63 per real). This change would mean that the dollar had ________ (appreciated OR depreciated) against the real.Using data from The Economist's Big Mac Index for 2011, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: S1.63 Dollar price of a Big Mac in the United Kingdom= GBP 2.39 x GBP 1.0 = $3.90 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for french fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Big Mac Index: July 25, 2011 Local…Coffee grown in Guatemala is priced at 17 Guatemalan quetzal per pound (Guatemalan quetzal, or GTQ, is the currency of Guatemala). Comparable coffee grown in the U.S. is priced at $8.40 per pound. One Guatemalan quetzal trades for $0.13 in the foreign exchange market. Find the real exchange rate from the perspective of the United States and from the perspective of Guatemala, and determine which country's coffee is more competitively priced? Instructions: Enter your responses rounded to two decimal places. Real exchange rate from the perspective of the U.S. is Real exchange rate from the perspective of Guatemala is Coffee is more competitively priced in [Guatemala V
- When you write an exchange rate in terms of how many units of a foreign currency it takes to buy one US dollar, we call that: a)a direct quote b) the real price c) an indirect quote d) a depreciationIn 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…Using data from The Economist's Big Mac Index for 2019, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $5.74 in the United States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.25 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: Dollar price of a Big Mac in the United KingdomDollar price of a Big Mac in the United Kingdom = = GBP 3.29×$1.25GBP 1.00GBP 3.29×$1.25GBP 1.00 = = $4.11$4.11 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is…
- It costs 100 GBP to buy a certain basket of goods in the UK. It costs 200 USD to buy the same basket in the US. 1 year deposit rates are 10% in both countries. Everyone expects these numbers to remain the same indefinitely. What is the current exchange rate between USD and GBP implied by purchasing power parity? What is the current exchange rate between USD and GBP implied by the overshooting model? Today, the Bank of England announces that it is going to lower the short-term interest rate to 5% in May 2024 and to return it to 10% in May 2025. It also says that the price level will go up and, eventually, it will cost 150 GBP to buy the same basket of goods in the UK. The price adjustment will be completed by May 2026. What is the current exchange rate between USD and GBP implied by the overshooting model? Under the circumstance described in (3), what will be the exchange rate between USD and GBP in May 2024?Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption,investment, government spending, and taxes are given by:C = 8 + 0.6(Y - T), I = G = T = 0.Imports/ exports are given by:Q = 0.4Y, X = 0.4Y*,where an asterisk denotes a foreign variable. if the domestic government increases spending by 6 units as in b) and G=0in the foreign country, the equilibrium output in the domestic country increases by units, and the trade balance in equilibrium is Now, suppose that the two countries coordinate in their fiscal policy. Both countries set atarget level of output of 30 and agree to increase G at the same amount. The common increase in Gnecessary to achieve the target output is and the trade balance isThe NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchange rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative USdollar? Explain your answer and show the calculation. b. Do you think the price of a representativeness car, Mercedes Benz in different countriesprovides a valid test of purchasing power parity?