rates and prices today: the spot exchange rate today: AU$2.05 per U.K pound; the price level in Australia today: AU$4.00; and the price level in the U.K. today: 2.00 pounds (a) Calculate the real exchange
rates and prices today: the spot exchange rate today: AU$2.05 per U.K pound; the price level in Australia today: AU$4.00; and the price level in the U.K. today: 2.00 pounds (a) Calculate the real exchange
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 49QA
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Question
You observe the following current rates and prices today:
- the spot exchange rate today: AU$2.05 per U.K pound;
- the price level in Australia today: AU$4.00; and
- the price level in the U.K. today: 2.00 pounds
(a) Calculate the real exchange rate of Australia against the U.K., q(AU/UK).
(b) Calculate the over-/under-valuation of the Australian dollar.
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