ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
If a cup of coffee costs 2 euros in Paris and $6 in New York and purchasing-power parity holds, what is the exchange rate?
Group of answer choices
1/3 euro per dollar
4 euros per dollar
3 euros per dollar
1/4 euro per dollar
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- 1 Suppose that two countries, Indonesia and Vietnam, produce coffee. The currency unit used in Indonesia is the Rupiah (IDR). The currency unit used in Vietnam is the Dong (VND). In Vietnam, coffee sells for 4,500 dong (VND) per pound. The exchange rate is 1.57 VND per 1 IDR, EVND/IDR = 1.57. 2 If the law of one price holds, what is the price of coffee in Indonesia, measured in Rupiah (assume we are talking about the same type of coffee)? Please round your answer to the nearest whole number. Assume the price of coffee in Indonesia is actually 3000 IDR per pound. Compute the relative price of coffee in Indonesia versus Vietnam (round your answer to 2 decimal places). Where will coffee traders buy coffee? Where will they sell coffee in this case? How will these transactions affect the price of coffee in Vietnam? In Indonesia?arrow_forwardThe Purchasing Power Parity (PPP) theory of the exchange rate implies that the currency of a country A would depreciate against that of country B if: (a) the inflation rate in A exceeds that in B (b) the normal interest rate in A exceeds that in B (c) the growth rate of GDP in B exceeds that in A (d) foreign direct investment moves from B to Aarrow_forwardThe Big Mac index is used as a rough measure of purchasing power parity across countries. The Economist magazine recently included the Vietnamese dong in its calculation of the Big Mac index. A Big Mac costs $5.06 in the United States but only 60,368 dong or $2.66 in Vietnam (at the current exchange rate). What does this information suggest about the value of the real exchange rate of the U.S. dollar relative to the Vietnamese dong (treating the United States as the domestic economy, so the nominal exchange rate is expressed as dong per dollar)? Is the real exchange rate likely to be greater than or less than 1?arrow_forward
- The same pair of shoes costs $200 in the U.S., 22,000 Japanese Yen, £130 British pounds and 190 Euros. What are the Yen/$, £/$ and €/$ exchange rates if the Law of One Price holds?arrow_forwardplease do this for the country China.arrow_forwardIf the exchange rate is 1$ = 4₹, how many ₹s do I need to buy a $16 movie ticket in America?Group of answer choices 1) 64₹ 2) 4₹ 3) $4 4) 16₹arrow_forward
- If the purchasing-power parity theory is true, then the nominal exchange rate between two countries equals the ratio of the countries’ price levels • True • Falsearrow_forwardThis is not a writing assignment, this is a multiple-choice question Which of the below statements about international exchange rates and PPPs (Purchasing Power Parity) would you consider to be INCORRECT? Group of answer choices The PPP only focuses on internationally tradable items, while the exchange rate has a broader focus and includes both internationally tradable and items that are not internationally tradable. Exchange rates include only the values of internationally tradable items, while the PPP includes both internationally tradable items as well as those which are not internationally tradable items but are used by people in different countries. The rate at which one currency can be exchanged for another is the exchange rate. If $25 can purchase a bundle of goods in the U.S. and if a comparable bundle of goods will cost 750 rubles in Russia, then the PPP between the U.S. dollar and the Russian ruble would be $25=750 Russian rubles.arrow_forwardplease solvearrow_forward
- If the current U.S. interest rate is 10% and PPP is expected to hold, what should be the Canadian interest rate to maintain interest parity?arrow_forwardIf a "Big Mac costs $4.00 in the United States and 200 yen in Japan, then the implied "purchasing-power-parity" exchange rate using the "Big Mac" is __________. If the actual exchange rate in the market is 120 yen = $1, then an economist would say that the actual Japanese yen is __________ in comparison with its "purchasing-power-parity" rate.arrow_forwardHow do international investment activities affect exchange rates?arrow_forward
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