Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 26, Problem 6SPA
To determine
Identify the exchange rate expectation of yen against euro.
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It costs 100 GBP to buy a certain basket of goods in the UK. It costs 200 USD to buy the same basket in the US. 1 year deposit rates are 10% in both countries. Everyone expects these numbers to remain the same indefinitely.
What is the current exchange rate between USD and GBP implied by purchasing power parity?
What is the current exchange rate between USD and GBP implied by the overshooting model?
Today, the Bank of England announces that it is going to lower the short-term interest rate to 5% in May 2024 and to return it to 10% in May 2025. It also says that the price level will go up and, eventually, it will cost 150 GBP to buy the same basket of goods in the UK. The price adjustment will be completed by May 2026. What is the current exchange rate between USD and GBP implied by the overshooting model?
Under the circumstance described in (3), what will be the exchange rate between USD and GBP in May 2024?
Coffee grown in Guatemala is priced at 17 Guatemalan quetzal per pound (Guatemalan quetzal, or GTQ, is the currency
of Guatemala). Comparable coffee grown in the U.S. is priced at $8.40 per pound. One Guatemalan quetzal trades for $0.13 in the
foreign exchange market.
Find the real exchange rate from the perspective of the United States and from the perspective of Guatemala, and determine
which country's coffee is more competitively priced?
Instructions: Enter your responses rounded to two decimal places.
Real exchange rate from the perspective of the U.S. is
Real exchange rate from the perspective of Guatemala is
Coffee is more competitively priced in [Guatemala
V
If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a dollar can buy 100 yen, what are the normal and real exchange rate?
Chapter 26 Solutions
Macroeconomics
Ch. 26.1 - Prob. 1RQCh. 26.1 - Prob. 2RQCh. 26.1 - Prob. 3RQCh. 26.1 - Prob. 4RQCh. 26.1 - Prob. 5RQCh. 26.1 - Prob. 6RQCh. 26.1 - Prob. 7RQCh. 26.2 - Prob. 1RQCh. 26.2 - Prob. 2RQCh. 26.2 - Prob. 3RQ
Ch. 26.2 - Prob. 4RQCh. 26.2 - Prob. 5RQCh. 26.2 - Prob. 6RQCh. 26.3 - Prob. 1RQCh. 26.3 - Prob. 2RQCh. 26.3 - Prob. 3RQCh. 26.3 - Prob. 4RQCh. 26.4 - Prob. 1RQCh. 26.4 - Prob. 2RQCh. 26.4 - Prob. 3RQCh. 26 - Prob. 1SPACh. 26 - Prob. 2SPACh. 26 - Prob. 3SPACh. 26 - Prob. 4SPACh. 26 - Prob. 5SPACh. 26 - Prob. 6SPACh. 26 - Prob. 7SPACh. 26 - Prob. 8SPACh. 26 - Prob. 9SPACh. 26 - Prob. 10SPACh. 26 - Prob. 11APACh. 26 - Prob. 12APACh. 26 - Prob. 13APACh. 26 - Prob. 14APACh. 26 - Prob. 15APACh. 26 - Prob. 16APACh. 26 - Prob. 17APACh. 26 - Prob. 18APACh. 26 - Prob. 19APACh. 26 - Prob. 20APACh. 26 - Prob. 21APACh. 26 - Prob. 22APACh. 26 - Prob. 23APACh. 26 - Prob. 24APACh. 26 - Prob. 25APACh. 26 - Prob. 26APACh. 26 - Prob. 27APACh. 26 - Prob. 28APACh. 26 - Prob. 29APA
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Similar questions
- List some advantages and disadvantages of the different exchange rate policies.arrow_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_forwardThe euro/dollar exchange rate is 1 euro = $1.20. According to the law of one price, a camera that sells for $240 in New York should sell for how many euros in Germany?arrow_forward
- Data from The Economist BigMac index from January 2022 shows that the localprice of a Big Mac in Argentina is 450 Argentine pesos (ARS) and the price of a BigMac in Britain is 3.59 pounds sterling (GBP). The exchange rate XARS/GBP = 140.895.Assume there is no bid-ask spread. Calculate the Purchasing Power Parity Rate PPPRARS/GBP. What does this ratemeasure?arrow_forwardIn mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros (the monetary unit in the European Union). If a U.S. dollar bought 0.55 pound sterling in 2006, what was the exchange rate between the U.S. dollar and the euro?arrow_forward
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