Part (a) A can of beer costs US$0.9 in the US and 6 yuan in China. What will the yuan-dollar exchange rate be if purchasing power parity holds? If the current nominal exchange rate is 6.79 yuan per US dollar, is the Chinese yuan under- or overvalued? Part (b) If all prices in the US decrease by five per cent, what will happen to the yuan-dollar exchange rate?
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- The current exchange rate is $1.19 / Euro. The expected inflation rate for the next year in the U.S. is 0.62% while it is 0.79% in the EU. What would be the expected exchange rate in one year’s time if Purchasing Power Parity holds? Provide your answer till 4 digits after the decimal point. Based on yourresult, is the Euro expected to appreciate or depreciate?The following table shows the nominal and real exchange rates for two countries and two years (OECD, 2020a,b). The column names are the country codes (not the currency codes) and the exchange rates are expressed as the amount of the currency per unit of US dollar. Year 1979 1984 i. DNK: O Increased ii. ISL: DNK O Increased 5.2610 10.3566 Decreased Remained unchanged Decreased Nominal a. Indicate whether the cost of goods in each country has increased, decreased, or remained unchanged, relative to the cost of goods in the United states between 1979 and 1984. Remained unchanged ISL 3.5260 31.6937 DNK 0.6621 1.1781 Real ISL 0.8612 1.3433If the Japanese price level rises by 5% relative to theprice level in the United States, what does the theoryof purchasing power parity predict will happen to thevalue of the Japanese yen in terms of dollars?
- Question 5 (a) Can you identify any implications of purchasing power parity? (b) Examine the exchange rate in your country compared to the Caribbean region. Do you see any large differentials or variations in the exchange rates? (c) Do you think LOOP really works? Give a reason for your answer? (d) If a can of spam costs $2 in the US and 6 pesos in Mexico, what would be the peso/dollar exchange rate if PPP holds? 5. If inflation is 3.5% in US and 7% in Mexico. What will happen to the peso/dollar exchange rate?3 / 3 100% 每 8. The price of a laptop in the United States is $1,000. The price of a car in taly is 10,000 euros The current exchange rate rs09 curos per dollr. Ifa laptop is exported from the United Startes to Italy with no barriers to trade, what will be the price of the aptop in Italy? Ira car is imported to the United States from luh with barriers to trade, what will be the price of the crin ahe Ented Statres? Suppose the dollar appreciates by 0pereent aganscihecomo. Whr will be the price ofa computer exporied from the United States changem ltaly? -Suppose thhe dollarapprecites br 10 percentagamst the curoWt willbethe price of a car inmported to the Enred States from Ital chnge m tdhe Eaed Statese (8 marks) (2marks) 2marks) (2marks] (2marks)assume the following scenario between maxico and the US . nominal exchange rate= 25 pesos per $ , price of Hat =$100 in the US. price of Hat in maxico 1000 pesos . if the purchasing power parity holds and the price in maxico and the US are not changing but nominal exchange rate is flexible.what will be the nominal exchange rate? (a) 10 (b) 8 (c) 1 (d) 12
- The demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 eurosA can of soda costs $1.25 in the United States and 25 pesos in Mexico. What is the pesos-dollar exchange rate(meaured in pesos per dollar) if purchasing-power parity holds? If a monetary expansion caused all prices in mexico to double, so that soda rose to 50 pesos, what would happen to the peso-dollar exchnage rate?(b) Suppose in month t the monthly nominal interest rate is i 0% in Japan and i = 5% in South Africa. Suppose further that in month t a speculator invests 500 million yen in carry trade for one month. Let & be the nominal exchange rate in t, defined as the 4 rand price of one yen. Suppose that between t and t +1 the yen appreciates by 2% percent. Did the speculator gain or lose and by how much? Express your answer in yen.
- (a) Suppose that you live in Korea. Thus, the won is a domestic cur- rency, while the dollar is a foreign currency. Assume that the won interest rate is 5% and the dollar interest rate is 2%. The current exchange rate is W1,000 per dollar. Answer the following questions: a. The won is expected to depreciate against the dollar. Therefore, the expected exchange rate will be W1,030 per dollar a year later. If you are a holder of dollar deposits, what should you do? b. Experts believe that the expected exchange rate has been mis- calculated. Given the interest rates and the current exchange rate, find the expected exchange rate that satisfies the equilib- rium condition for the foreign exchange market today.A box of chocolate candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, what is the current exchange rate? Ⓒa 1 U.S. dollar equals 1.44 Swiss francs Ob. 1 U.S. dollar equals 1.21 Swiss francs Oc1 US dollar equals 1.29 Swiss francs d. 1 U.S. dollar equals 0.69 Swiss francs e. 1 U.S. dollar equals 0.85 Swiss francsEconomics Suppose that the price level in Canada is 110, and the price level in Temeria is 130. What should be the nominal exchange rate such that the purchasing power parity between the two countries hold? A. 1.182 Temerian Oren per Canadian Dollar B. 0.923 Temerian Oren per Canadian Dollar C. 1.083 Temerian Oren per Canadian Dollar D. 0.846 Temerian Oren per Canadian Dollar E. 1 Temerian Oren per Canadian Dollar