2- Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥4,200,000. The exchange rate is ¥109.60/$. The forecast rate of inflation in the United States is 2.5% per year and is 1.5% per year in Japan. Use this data to answer the following questions on exchange rate pass- through. a. What was the export price for the Corolla at the beginning of the year expressed in the U.S. Dollars? b. Assuming purchasing power parity holds, what should the exchange rate be at the end of the year? c. Assuming a 65% pass-through of the exchange rate, what will be the dollar price of a Corolla at the end of the year?
2- Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥4,200,000. The exchange rate is ¥109.60/$. The forecast rate of inflation in the United States is 2.5% per year and is 1.5% per year in Japan. Use this data to answer the following questions on exchange rate pass- through. a. What was the export price for the Corolla at the beginning of the year expressed in the U.S. Dollars? b. Assuming purchasing power parity holds, what should the exchange rate be at the end of the year? c. Assuming a 65% pass-through of the exchange rate, what will be the dollar price of a Corolla at the end of the year?
Chapter4: Exchange Rate Determination
Section: Chapter Questions
Problem 23QA
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Transcribed Image Text:2- Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥4,200,000. The
exchange rate is ¥109.60/$. The forecast rate of inflation in the United States is 2.5% per year and
is 1.5% per year in Japan. Use this data to answer the following questions on exchange rate pass-
through.
a. What was the export price for the Corolla at the beginning of the year expressed in the U.S.
Dollars?
b. Assuming purchasing power parity holds, what should the exchange rate be at the end of the
year?
c. Assuming a 65% pass-through of the exchange rate, what will be the dollar price of a Corolla at
the end of the year?
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