What three real-world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run? Explain..
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- 13 what is the difference between the exchange rate in close economy and open economyHi, the solution to the last answer was not given above d. Considering current world economic climate, the future exchange rates are uncertain. How would you analyse/anticipate the change in exchange rates? Write your proposal to mitigate impact of possible exchange rate fluctuations7 Explain briefly the main characteristics of the Big Mac price index and why it is considered a better predictor of changes in exchange rates than the implied PPP exchange rate. The BigMac currently costs 21.70 yuan in China and $5.71 in the US and the current exchange rate is S(yuan/$)=0.2. a) Would you say the yuan is correctly valued? b) What is the expected evolution of the exchange rate? c) What is the real exchange rate?
- 1.Purchasing Power Parity (PPP) theory states that Which of the answers is incorrect? a . as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies. b . the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels. c . the prices of standard commodity baskets in the two countries are not relatedWhat is a long position in foreign exchange? Does a successful Long position mean the currency price becomes lower than what you bought it?Which of the following is/are TRUE with respect to spot market liquidity? I. The market liquidity improves if more buyers and sellers willing to participate in the currency trading. II. The spot markets for heavily traded currencies such as the Euro and Pound are very liquid. III. A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. IV. If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate. A. I, II, III B. I, III, IV C. II, III, IV D. I, II
- 1. Will US$/C$ futures exchange rate go up or down? 2. Will US$/C$ spot exchange rate go up or down?PQ 6 In the Dornbusch "overshooting" model, asset markets adjust rapidly to disturbances than do goods markets, and therefore the exchange rate and the price level proportionately to each other in the short run. a. more/move b. more/do not move c. less/move d. less/do not moveHi. How do you draw the Mundell-Fleming model with a fixed exchange rate and a restrictive monetary policy? Does the IS and LM curves both shift to the left like i did in my diagram.
- A 3. Briefly explain below the different theories about the irrelevance/relevance of exchange rates. Think and discuss about all the firms' factors that are affected by movements in exchange rates.Why the single currency eliminates exchange rate fluctuation and why is better for the countries to use the a common currency?28) If we are using foreign currency for the NPV decision, all we have to do is restate all the ________ in terms of present value and use the current exchange rate. A) salvage value B) foreign incremental cash flow C) domestic incremental cash flow D) None of these