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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

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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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