Suppose that on January 1 2018, the Euro price of the dollar is 2.40 over the year, inflation rate in England is 20 % and U.S. inflation rate is 4 %. If the exchange rate is $1= 2.85€ at the end of the year, which currency appear to be overvalued?

Suppose that on January 1 2018, the Euro price of the dollar is 2.40 over the year, inflation rate in England is 20 % and U.S. inflation rate is 4 %. If the exchange rate is $1= 2.85€ at the end of the year, which currency appear to be overvalued?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 12E

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Question

Suppose that on January 1 2018, the Euro price of the dollar is 2.40 over the year, inflation rate
in England is 20 % and U.S. inflation rate is 4 %. If the exchange rate is $1= 2.85€ at the end
of the year, which currency appear to be overvalued?

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