ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
  1. Referring to the information below:

Country               Big Mac Price      Inflation rate (1 year)        Rate (1year)     

USA                    $5                            2%                                    2.5%    

Japan                  Yen 600                   1%                                    1.5%

 

1) Calculate Implied Exchange Rate (show calculation) and indicate if its overvalued or undervalued given that actual Exchange Rate is 150 yen per dollar;

2) calculate forward exchange rate using interest rate parity theory; and

3) calculate real exchange rate. 

20. Referring to the information below: Country Big Mac Price Inflation rate (1 year) Rate (lyear) USA S5 2% 2.5% Japan Yen 600 1% 1.5% 1) Calculate Implied Exchange Rate (show calculation) and indicate if its overvalued or undervalued given that actual Exchange Rate is 150 yen per dollar 2) calculate forward exchange rate using interest rate parity theory; and 3) calculate real exchange rate.
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Transcribed Image Text:20. Referring to the information below: Country Big Mac Price Inflation rate (1 year) Rate (lyear) USA S5 2% 2.5% Japan Yen 600 1% 1.5% 1) Calculate Implied Exchange Rate (show calculation) and indicate if its overvalued or undervalued given that actual Exchange Rate is 150 yen per dollar 2) calculate forward exchange rate using interest rate parity theory; and 3) calculate real exchange rate.
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