(a) Consider the exchange rate between US dollar and British pound. Let CPI be the consumer price index,or equivalently the average price level in a country. Assume the ratio CPIUK/CPIUS =0.75. According to thelaw of one price, what must be the exchange rate between US dollar and British pound (i.e. 1 poundequals to how many dollars)?Sunnese theore are three investment nroiects A. R.Rand C

Goods should cost same in all countries. This is the Law of One Price. So, exchange rate should be…

Answered: (a) Consider the exchange rate between…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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Similar questions

Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?
If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
determine the purchasing power of the country China for aconsumer good that they would buy from their Canadian trading partner. Also, calculate whatCanada’s purchasing power is with a country that they import from. See example below on Coca Colaand Mexico. Purchasing Power Example In the example of the picture, if a Canadian company operating in Mexico were to pay its Mexican employeesthe equivalent of $10/hour CAD (or 100 pesos/hour according to our fictional exchange rate), theMexican employee would actually enjoy greater purchasing power (the ability to acquire 20 colasversus only 10 colas) than his/her Canadian counterparts.
Only like if no ai or downvoted for ai content Suppose that the equilibrium exchange rate between the United States and South African is 15.13 Rand per US dollar. Further suppose that the two countries are trading partners with each other. Inflation now rises in South Africa. Which of the following answer choices correctly represents the shift that would occur in the US foreign exchange market? The supply of US dollars would fall. The demand for South African Rands would rise. The supply of South African Rands would rise.
Currency Exchange Worksheet (#5)1. Let $1 =.78 €How much would a 20,000 € automobile cost in US$2. From #1, let the SUS appreciate by 5%,Now how much does the auto cost?3. Let $1 = .78 € and $1 = 6.3 CNY (Chinese Yuan Renminbi)How many CNY will be purchased for 1 €4. Given #3, how many € would it cost for a European importerto purchase 300 Chinese computers @, 3000 CNY per computer?5. From #4, let there be a 5% appreciation in the CNY against the EuroNow how much do the computers cost in €?
Purchasing-power parity holds between the nationsof Ectenia and Wiknam, where the only commodityis Spam.a. In 2020, a can of Spam costs 4 dollars in Ecteniaand 24 pesos in Wiknam. What is the exchange ratebetween Ectenian dollars and Wiknamian pesos?b. Over the next 20 years, inflation is expected to be3.5 percent per year in Ectenia and 7 percent peryear in Wiknam. If this inflation comes to pass,what will the price of Spam and the exchangerate be in 2040? (Hint: Recall the rule of 70 fromChapter 27.)c. Which of these two nations will likely have ahigher nominal interest rate? Why?d. A friend of yours suggests a get-rich-quickscheme: Borrow from the nation with the lowernominal interest rate, invest in the nation with thehigher nominal interest rate, and profit from theinterest-rate differential. Do you see any potentialproblems with this idea? Explain.
In Delhi, a haircut costs 135 rupees (INR). Thesame haircut costs 15 Singapore dollars (SGD) inSingapore. At an exchange rate of 50 IN per SGD,what is the price of an Indian haircut in terms of aSingapore haircut? Keeping all else equal, howdoes this relative price change if the INRdepreciates to 55 INR per SGD? Compared to theinitial situation, does a Singapore haircut become more or less expensive in relation to an Indianhaircut?
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 euros
(b) Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4. (i) What is the nominal exchange rate? Use the expression: ereal= enor*P / Pfor where ereal is real exchange rate, enor is nominal exchange rate, P is domestic price level and Pfor is foreign price level. (ii) Suppose the real exchange rate rises by 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change?
Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people who want to convert dollars to yuan are asking to convert $10 billion per day of dollars into yuan, while the people who are wanting to convert yuan into dollars are asking to convert 36 billion yuan into dollars. What will happen to the size of China’s official reserves of dollars? a. Increase. b. Decrease. c. Stay the same.
If 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?
1. What explains how the dollars per euro exchange rate will change in the future if the exchange rate is wxpected to rise. 2. What is addressed by the USMCA? 3. Country A has a GDP of 60,000,000 and country B has a per capita of 2,000. If the populations of countries a and b are 40,000 and 20,000 respectively, which country is most developed based on per capita GDP? 4. how can a difference in Gini coefficients for the United States and china be interpreted 5. which of the following trends have followed globalization?

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